On March 1st, 2013, President Barack Obama, signed into law sequestration. This bill came about because of congressional inaction to find a way to cut the deficit. This bill will cut $85 billion in discretionary spending in fiscal year 2013.
The IMF(International Monetary Fund), in a statement urging for the repeal of the federal spending cuts, the IMF has warned that the budget cuts are ill designed. Skepticism has been lingering around the world to see just how big of an impact this will deal on the american economy.
Sighting the fact that the deficit reduction program will drag down growth this year.The IMF has forecast a growth of 1.9% in 2013, but also noted that the percentage point may be up to 1.7% higher without the rapid tightening of fiscal policy.
Pointing to the improving housing market,strong profitability by corporations, and the increases of the labor market the IMF said that the overall economy is improving. Not only would these spending cuts hurt in the short term, cut’s in education, science, and infrastructure could reduce growth in the medium term.
These ill designed cuts, should be replaced with a mix of savings from healthcare and pensions, and new revenues. Director of the IMF Christine Lagarde said that the advice of the IMF is to slow the fiscal adjustment for this year, which would help create jobs and better sustain growth. But hurry up and put in place a medium-term road map to restore long-run fiscal sustainability.
The IMF’s predicted growth of 1.9% this year falls under the 2.2% reached last year by the american economy, but predicts a 2.7% rise in the american economy in 2014. Expressing support for the Federal Reserves, $85 billion a month quantitative easing program, stating that it should continue quantitative easing at least until the end of 2013. Concerns have been raised because of the Fed’s announcement that it could end the stimulus program which has caused important support to the US and global economies.
Warning that unwinding monetary policy would likely cause problems. A long period of low interest rates could have unintended consequences and sow the seeds of future financial vulnerabilities.