Christine Lagarde, managing director of the International Monetary Fund, said U.S. policy makers should create a long-term plan for handling the deficit or they will risk the nation’s position as the world’s economic leader.
Lagarde said that Washington officials have to “consider that the leading role played by the U.S. economy in the world is at stake,” speaking from Davos, Switzerland, in an interview broadcast today on CNBC television.
The U.S. House voted this week to suspend the nation’s $16.4 trillion borrowing limit until May 19. Congress should take advantage of the next three months to settle the debt ceiling issues rather than “kick the can down the road a little bit longer, a little bit farther,” Lagarde said.
“Things are negotiated under pressure, sometimes,” she said. “If they take the time to really sit down, rationally, sensibly, putting a little bit of their respective ideology on the side to really focus on what is good for the economy and what is going to be good for the rest of the world, that’s great.”
Faith in the U.S. economy could be undermined if uncertainty persists, she said.
“Confidence is something that is really fragile, can be eroded gradually, or broken down,” she said in the CNBC interview, explaining that the U.S. is now experiencing a slight decline in confidence that could have long-term effects. “Too much uncertainty or uncertainty for too long will erode confidence.”
The IMF on Jan. 23 said that in the U.S., “underlying economic conditions remain on track.” The fund also cut its forecast for the world’s largest economy to 2 percent from 2.1 percent in 2013 and raised it 0.1 percentage point to 3 percent next year.
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