The IMF warns mounting debt could derail a "robust" U.S. economy
America is racking up debt at an alarming pace, threatening to undermine an otherwise healthy economy, the International Monetary Fund (IMF) warned in its annual report.
The IMF cautioned that the U.S. is in danger despite impressive job growth, rising household wealth, and progress on inflation. The report called chronic fiscal deficits a "significant and persistent policy misalignment that needs to be urgently addressed."
The organization projects that the U.S. debt-to-GDP ratio will reach a record 140% by 2032.
While the IMF described the U.S economy as " robust, dynamic, and adaptable," it revised growth projections for this year down to 2.6%, a tenth of a percentage point lower than its April forecast.
"The U.S. economy is very strong, and it is in good times where you can do more to prepare yourself for risks in the future," said Kristalina Georgieva, the organization's managing director.
Difficult choices ahead as debt levels mount
The IMF warned of a storm brewing on the horizon—a mix of intensifying trade tensions, lingering vulnerabilities from 2023 bank failures, and an ever-growing mountain of debt.
To put the nation's fiscal house in order, the IMF said the US faces "a pressing need" to reduce its debt burden, a process that could require controversial tax increases and cuts to entitlement programs.
The organization cautioned that achieving the necessary fiscal adjustment will require "difficult political decisions over the course of multiple years."
Otherwise, according to Georgieva, the unchecked federal debt buildup could eventually sap U.S. economic growth and even snowball into global financial instability.
The next president will face a series of critical fiscal dilemmas, including whether to extend the Trump-era tax cuts set to expire at the end of 2025.
On one hand, allowing these cuts to lapse would effectively raise taxes on most Americans. On the other hand, extending them would push the nation further into a fiscal pit.
Meanwhile, President Biden has already ruled out one of the IMF’s suggestions: raising taxes on Americans earning less than $400,000 annually.
A growing chorus of concerns
The IMF's stark assessment comes on the heels of similarly sobering projections from the Congressional Budget Office (CBO), which recently boosted its estimate for this year's budget deficit by a staggering 27% to nearly $1.92 trillion.
The CBO also warns that under current policies, the US debt will surge from 99% of GDP today to 122% by 2034.
Meanwhile, according to The Organization for Economic Cooperation and Development (OECD), only Italy, Greece, and Japan have higher debt-to-GDP ratios.
The OECD has called for a "sustained but steady multiyear" budget effort to curb debt in their most recent assessment of the U.S. economy.
While an immediate crisis may not be at hand, the window for orderly action may be closing. As Georgieva put it, "Yes, you can carry it, but if you can bring it down, you would have an even stronger path for the future."