IMF warning on US debt. The International Monetary Fund (IMF) said that a US debt default triggered by a failure to raise the debt ceiling would have a very serious impact on the US and global economy.
IMF spokeswoman Julie Kozack said that the IMF has not been able to measure the impact of the US default on global growth. However, he said that a hike in interest rates could be one result of a US debt default, in addition to widespread global economic instability.
In its April projections, the IMF forecast global economic growth of 2.8 percent for 2023, but stressed that deeper financial market turmoil, marked by falling asset prices and bank credit cuts, could drag growth to as low as 1 percent.
Kozack cautioned that the US government needs to remain alert to new vulnerabilities in the US banking sector, including in regional banks, which could emerge in adjustments to higher interest rates.
“We want to avoid these negative impacts. And for that reason, we again call on all parties to come together, reach a consensus and resolve this issue as soon as possible,” he said in a press statement, Thursday (11/5).
Detailed talks on increasing the US government debt ceiling by $31.4 trillion started on Wednesday this week. Republicans who continue to insist on spending cuts if they want the debt ceiling to be raised.
Previously, US President Joe Biden from the Democratic Party and Congressional leaders from the Republican Party, including House Speaker Kevin McCarthy, met to discuss the debt ceiling issue.
US Treasury Secretary Janet Yellen has warned that a US debt default could occur on June 1 if Congress fails to raise the debt ceiling before then.
IMF warning on US debt. Regarding the turmoil in the US banking sector, Kozack said that the IMF welcomes decisive action by US regulators and policy makers to address the failures of three US regional banks in recent weeks.
Kozack added that the IMF will soon conduct an annual “Article IV” review of US economic policy, and that the assessment, which will be released towards the end of May, will analyze the impact of pressure on regional banks, including a tightening of credit conditions.