International Monetary Fund Managing Director Christine Lagarde on Wednesday praised U.S. lawmakers for returning to regular order in the budget process and for a “loosening of the fiscal corset” that had been acting as a drag on the economy.
“To have a deal on the budget, no matter what the deal is, is a good indication that there is willingness to work in an orderly fashion,” she said in remarks delivered at the National Press Club in Washington. The fact that the deal increased federal spending, she said, will spur economic growth, as will “the removal of the threat of the debt ceiling” and with it the possibility of future government shutdowns.
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Globally, Lagarde said, she expects growth to “continue to strengthen in 2014, largely due to improvement in large economies.”
However, she said, there are a number of possible roadblocks, among them, the possibility of deflation.
“With inflation running way below central bank targets…clearly we are seeing rising risk of deflation. If inflation is the genie, deflation is the ogre,” she said. Other concerns, she said, include an apparent slowdown in the growth of emerging market economies, and the remaining possibility of “turbulence” in financial markets and capital flow.
Echoing a theme that numerous U.S. lawmakers have taken up in the past week, Lagarde also warned that increasing income inequality is hindering economic progress.
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“In most countries, the benefits of growth are being enjoyed by far too few people,” she said. “In the U.S., 95 percent of income gains since 2009 went to the top one percent. This is not a recipe for civility and not a recipe for sustainability.”
Market reaction to Federal Reserve’s announcement that it will begin tapering its monthly securities purchases has been encouraging, she said, adding that while “there will be consequences” to the gradual reduction in economic stimulus, “we don’t anticipate massive, heavy and serious consequences.”
During the question and answer session, Lagarde, herself the first woman to be the finance minister of a major European country, was asked about the ascension of Janet Yellen as the first female chair of the Federal Reserve Board. What message did she take away from Yellen’s nomination?
“That women can do anything,” she said.
Follow Rob Garver on Twitter: @rrgarver
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