International Monetary Fund chief Christine Lagarde voiced optimism Sunday that U.S. President Donald Trump’s planned tax cuts and construction spending would boost the American economy, but said they could cause trouble for the economies around the globe.
Lagarde, speaking at the World Government Summit in Dubai, said, “From the little we know, and I will insist on the little we know, because this is really work in progress… but from the little we hear, we have reasons to be optimistic about economic growth in the United States.”
Major U.S. stock indexes are near record highs, with the new U.S. leader promising to unveil a “phenomenal” tax cut plan in the next two to three weeks, while also pledging to launch $1 trillion in major infrastructure spending to fix the country’s deteriorating roads and bridges and expand airports. But both measures would need approval by Congress, where the controlling Republican lawmakers have voiced skepticism about any changes that would add to the country’s nearly $20 trillion in long-term debt.
But Lagarde warned that advances by the U.S. economy, the world’s largest, could hurt economies elsewhere because of the strength of the dollar against other currencies and expected action by the U.S. central bank, the Federal Reserve, to gradually boost its benchmark interest rate to keep the American economy from overheating.
She said U.S. gains are good, but that “the more worrying news, if you will, is that it will have consequences on the rest of the world, and we are seeing it.” She said the Fed’s tightening of monetary policy “will be difficult on the global economy and for which economies will have to prepare.”
The IMF last month boosted its U.S. growth estimate a tenth of a point this year to 2.3 percent, and four-tenths of a point to 2.5 percent for 2018. The IMF predicted an increase in global growth to 3.4 percent in 2017 and and 3.6 percent in 2018, up from the 2016 figure of 3.1 percent.
Trump has already revoked U.S. participation in the planned 12-nation Trans-Pacific Partnership trade in favor of American deals with individual countries.
Lagarde, however, continued to promote globalization of the world economy, while acknowledging its negative aspects, which Trump says has cost U.S. manufacturing workers their jobs as their employers moved operations overseas in search of cheaper labor.
“We have been saying globalization is great, international trade is great — and it is,” Lagarde said. “But we have not looked at those who were badly, negatively impacted.”