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IMF's hawkish outlook on US Deficit leads to fall in stocks

 
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Author IMF's hawkish outlook on US Deficit leads to fall in stocks
marne.vivek
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Joined: 11 Apr 2008
Posts: 244
Location: Pune / Mumbai

Post: #1   PostPosted: Tue Apr 12, 2011 8:58 pm    Post subject: IMF's hawkish outlook on US Deficit leads to fall in stocks Reply with quote

From Bloomberg:

The U.S. is set to have the largest budget deficit of major developed economies this year and should narrow it now rather than face tough adjustments in the next two years, the International Monetary Fund said.

IMF released a report stating that the U.S. shortfall will reach 10.8% of its GDP this year, ahead of Japan and the U.K. It estimates that US will need to cut the deficit by 500 bps of GDP in the next two fiscal years, the largest adjustment required in “at least half a century,” to meet his pledge of halving it by the end of his four-year term.

“Market concerns about sustainability remain subdued in the U.S., but a further delay of action could be fiscally costly, with deficit increases exacerbated by rising yields,” the IMF wrote in its Fiscal Monitor report, published several times a year to analyze public finance development.

The IMF recommended “a down payment” in the form of deficit reduction this year that would make the government goal “compatible with a less abrupt withdrawal of stimulus later.”

Obama is expected to announce long-term proposals for cutting the federal deficit tomorrow, following a budget deal he reached with congressional leaders last week that averted a government shutdown. In May, the government may be forced to increase the $14.3 trillion federal debt ceiling to ensure the U.S. will meet its financial obligations.

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