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POLITICS: PennAve

International Monetary Fund cuts U.S. growth forecast

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PennAve,Joseph Lawler,Economy,Federal Reserve,Minimum Wage,Unemployment,IMF,GDP

The International Monetary Fund sees a more painful short-term future for the U.S. economy than the U.S. government does.

The IMF on Monday projected U.S. growth clocking in at just under 2 percent this year, a significant downgrade from the IMF's projection of 2.7 percent growth last year.

The prediction, part of the IMF's regular consultation with the U.S., also is well below the Federal Reserve's most recent forecast in March of 2.8 percent-3 percent, although the central bank is expected to lower its expectations following its monetary policy meeting this week.

The IMF expects unemployment to fall from the current 6.3 percent rate to 6.2 percent by the end of the year. The unemployment rate has fallen faster than either the IMF or the Fed expected, from 7.9 percent at the start of 2013. Analysts expect the Fed to significantly cut its unemployment rate forecast this week.

The IMF also endorsed two of the Obama administration's preferred policies: Expanding the Earned Income Tax Credit to households without children, and raising the minimum wage. The EITC provides tax subsidies to low-income families. Broadening the EITC "would be another effective tool to raise living standards for the very poor," the report said, and raising the minimum wage would have "strong complementarities" with a bigger EITC. Earlier this year, the Obama administration proposed increasing the size and expanding the eligibility for the EITC to affect 13.5 million workers.

America's debt is "still not on a sustainable longer-term path," the IMF also warned. The government needs to start running surpluses within a decade by lowering health care costs, addressing the Social Security trust fund's expected depletion, and raising tax revenue.

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