International Monetary Fund First Deputy Managing Director John Lipsky said US government finances will present policy makers with a “major challenge” for years.
“The challenges facing US public finances shouldn’t be underestimated,” Lipsky said during a conference panel discussion today on the US role in the world economy. There is a “brief window of opportunity” for fiscal-policy adjustments, and “the US needs to make the most of this window of opportunity.”
Treasury Secretary Timothy F Geithner this week said lawmakers must raise the $14.29 trillion federal borrowing limit in the first quarter of 2011 or risk a default on US debt. The US had a $1.3 trillion budget deficit in fiscal year 2010, which ended September 30. President Barack Obama’s debt-reduction panel failed last month to agree on recommendations for ways to reduce the annual deficit to about $400 billion in 2015.
“Fiscal adjustment is going to be one of the major challenges for US policy makers for some time to come,” Lipsky said at the annual meeting of the Allied Social Science Associations in Denver. While “supportive fiscal and monetary policies” should remain in place for the near term to boost a “sluggish” recovery, they are leaving behind a “legacy of high debt,” he said.
US employers added 103,000 jobs in December, fewer than the median projection of 150,000 in a Bloomberg News survey, Labor Department figures showed yesterday. The report affirmed Federal Reserve Chairman Ben S Bernanke’s view that it could take “four to five more years” for the labour market to completely mend.
Offering no real clues on the future direction of monetary policy, Bernanke sounded cautiously more upbeat than he had in his most recent public remarks. He cited improvements in consumer spending and a drop in jobless benefit claims as hopeful signs a languid recovery was perking up.
“We have seen increased evidence that a self-sustaining recovery in consumer and business spending may be taking hold,” the central bank chief said in his first testimony to Congress since the Fed launched a controversial plan to buy an extra $600 billion in government bonds.