Economic growth in U.S. to quicken next year, Lagarde says

Source: Bloomberg Source: Bloomberg

The International Monetary Fund is raising its outlook for the U.S. economy, as a budget deal in Washington and the Federal Reserve’s plan to taper its bond buying ease doubts about the future, IMF Managing Director Christine Lagarde said.

“We see a lot more certainty for 2014,” she said in an interview broadcast yesterday on NBC’s “Meet the Press.” With the unemployment rate falling, the Fed’s action last week and the government budget agreement, “all of that gives us a much stronger outlook for 2014, which brings us to raising our forecast,” she said.

Lagarde’s optimism follows a report this month that showed the labor market is improving while investors pushed stocks to record highs. In October, the IMF said the U.S. economy would expand 2.6% next year, compared with 1.6% in 2013. While she didn’t specify any new figures in the interview, the Washington-based fund typically issues revised forecasts in January.

The jobless rate, at 7% in November after 7.3% the month before, will keep falling as confidence increases that the economy is on a sustainable growth path, Lagarde said. She urged the U.S. Congress to be “responsible” and “not threaten the recovery with yet another debate about whether or not the U.S.” will honor its obligations or default on debt as the Treasury Department nears the limits of its borrowing authority in February.

Stocks Rally

The Standard & Poor’s 500 Index has rallied about 27% this year to a record and is on course for its best performance since 1997. Three rounds of central-bank bond purchases have helped propel the equity benchmark 169% higher from a 12-year low in 2009.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major counterparts, has advanced 3.5% this year.

Commerce Department figures released Dec. 20 showed the world’s largest economy grew in the third quarter at the fastest rate in almost two years. Gross domestic product climbed at a 4.1% annualized rate, up from a previous estimate of 3.6%, the report showed.

The Fed said on Dec. 18 it plans to trim its monthly bond purchases to $75 billion from $85 billion starting in January, taking the first step toward unwinding the unprecedented stimulus put in place by Chairman Ben S. Bernanke.

Tapering QE

Lagarde, 57, praised the Fed’s “very well communicated” plan. “What has been announced in terms of tapering is an indication that the central bank in the U.S. has more trust, more confidence in the real economy picking up now,” she said.

The IMF chief also indicated support for the bipartisan budget passed last week that eases $63 billion in automatic spending.

“Making sure that there is growth, that there is adequate redistribution through various systems, is important,” Lagarde said when asked about the minimum wage and income inequality. “There is a clear indication that rising inequality leads to less sustainable growth.”

Lagarde, who became the first woman to head the IMF in 2011, said countries need to have more balanced gender participation to strengthen growth potential.

“There are countries, particularly advanced countries, like Japan, like Korea, that need to open up that job market to women,” she said. “In the U.S., as in other European countries, the participation of women in the job market, the access for women to credit, is going to be conducive to more growth, to more well-being for the people.”

Asked about her own political career in her native France, where she used to be finance minister, Lagarde said she doesn’t think about running for president, while stopping short of ruling it out.

“The future will tell us what happens,” she said. “I’ve got, you know, more, more work to do, more years to go.”

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