The International Monetary Fund on Tuesday cut its growth forecast for the US economy, and warned that Washington’s political paralysis could drag growth down further.
The Fund, in its new World Economic Outlook, said the US economy would grow 1.6 percent this year and accelerate to 2.6 percent in 2014, down respectively 0.1 and 0.2 percentage points from its July forecast.
It said the reduction was due to the impact of the sharp sequester spending cuts instituted by the government earlier this year aimed at trimming the federal deficit.
The economy still needs the Federal Reserve’s easy-money policy, including its $85 billion a month bond-buying program, which the Fund said should be trimmed only slowly over the next year.
It said growth will pick up over next year as the Fed’s ultra-low interest rates and its stimulus aid economic activity and help boost stock and property prices, strengthening household finances.
“The unemployment rate is projected to decline gradually and inflation to regain some momentum while remaining subdued given the still-wide output gap,” it said, referring to the surplus capacity in industry and the elevated unemployment rate.
But it warned that continued political havoc over the federal budget and borrowing cap, which has forced the shutdown of parts of the US government, and more tightening of financing conditions could begin to hurt growth.
“Despite some upside potential, risks to the outlook remain tilted to the downside,” the Fund said.
“A longer shutdown could have sizable adverse growth implications. A failure to promptly raise the debt ceiling could also adversely affect financial markets and economic activity, with spillovers to the rest of the world,” it said.
“Overall, an untimely tightening in US monetary conditions combined with shocks from the external front — such as further deceleration in growth in other major economies… could lower US growth by close to one-half percentage point over the next year and by one percent in the medium term.”
IMF chief economist Olivier Blanchard said the US economy continues to be crucial to global growth, criticizing the sequester cuts that have held back its potential.
“Private demand continues to be strong, although growth has been hobbled this year by excessive fiscal consolidation,” he said in a preface to the report.
“Politics is creating uncertainty about both the nature and the strength of the fiscal adjustment. The sequester is a bad way to consolidate, and conflicts around increasing the debt ceiling could lead to another bout of destabilizing uncertainty and lower growth.”
The report pointed to the effect the expected reduction in the Fed’s stimulus has already had, sharply pushing up loan rates and helping spark capital outflows from emerging economies.
While the IMF warned once again that the US central bank should go slow in reducing the stimulus, it acknowledged that it was time to begin doing so to normalize monetary policy from its crisis footing.
But Blanchard said that by necessity this will press up long-term interest rates and feed some turbulence in emerging market economies.
“Normalization of interest rates in advanced economies is likely to lead to a partial reversal of previous capital flows. As investors repatriate funds to the United States, countries with weaker fiscal positions or higher inflation are particularly exposed,” he said.
‘This American dream’: Pain overwhelms family of drowned migrants
"They had this American dream," sobbed Rosa Ramirez after images of her drowned son and granddaughter, discovered face-down on the banks of the Rio Grande between Mexico and the United States, shocked the world on Wednesday.
The poignant pictures of Oscar Alberto Martinez and his toddler daughter Valeria -- not yet two years old -- has sparked outrage back home in El Salvador, where around 200 migrants like them leave for the United States daily, preparing to take similar risks.
"The pain has been immense. I still can't believe that my boy and my little granddaughter are dead, they only wanted to get to the United States.... they had this American dream -- to achieve a better life," Oscar's mother told AFP.
Venezuela government says thwarted attempted ‘coup’
Venezuela's socialist government said Wednesday it had derailed an attempted coup, claiming the United States, Colombia and Chile colluded in a military plot to assassinate President Nicolas Maduro and install a general and former defense minister in his place.
Communications Minister Jorge Rodriguez said the plan involved active and retired army officers and was to have been executed between Sunday and Monday this past weekend.
"We were in all the meetings to plan the coup d'Etat. We were in all the conferences," Rodriguez said, suggesting that government informers had infiltrated the alleged plotters during planning meetings.
Democrats believe Mueller testimony could be tipping point for impeachment: CNN
On Wednesday, CNN congressional correspondent Manu Raju reported that some House Democrats view special counsel Robert Mueller's upcoming public testimony to the House Intelligence and Judiciary Committees in July as a potential tipping point that could sway both Democratic leaders and the American people in favor of opening an impeachment probe.
"Democrats who support opening up an impeachment inquiry believe this could bolster the calls to open up formal proceedings, perhaps shift public opinion, perhaps encourage the House Speaker Nancy Pelosi to move off of her opposition to opening up an impeachment probe because of what Bob Mueller will say," said Raju.