IMF lowers estimate of US economic growth in 2014

Christine Lagarde said that an increase in the minimum wage now $7.25 an hour would be helpful from a macroeconomic point of view.

June 17, 2014 2:17 IST | India Infoline News Service
The International Monetary Fund on Monday called on the US to raise its minimum wage, but did not provide any specific level, saying thats up to Congress.
Christine Lagarde, the IMFs managing director said that an increase in the minimum wage now $7.25 an hour would be helpful from a macroeconomic point of view.
We believe that the increase in the minimum wage would be helpful, particularly if coupled with an increase in the EITC. So it's the two together that we believe would be very helpful, Lagarde added.
The market assessments is generally that once tapering will have been completed to the point where there will no longer be purchases then tightening might, in short order, take place. We're not that certain about the short order, Lagarde said.
The US annual report said that the US growth prospects have been lowered substantially from 2.8 to 2 percent. 
When we look at the number where it is today it's clearly within the three lowest, relative to median wage, in all of the OECD countries at 38 percent of the median wage. Given the other numbers that I've mentioned, the 50 million Americans living below poverty levels, and the number of unemployed people, we believe that an increase of that minimum wage would be helpful from a macroeconomic point of view.
We're talking about significant numbers. You know, when you have 50 million people living below poverty level, many of whom are actually working people, not people who are just not doing anything. That's why we are recommending it.
Now, as to give you a number, is it $10.10? This is something that needs to be decided by the legislators, clearly. But I would also observe that there are states in which minimum levels have been raised to try to reduce those poverty levels.
we believe that this Q1 result was a temporary occurrence with temporary outcomes that will be mitigated by stronger growth going forward in Q2, Q3, and hopefully ongoing.
However, as you will have noted, we have revised down our forecast for growth trend in the United States to 2 percent. So, you know, we are facing this aging population issues. We are facing this relatively low productivity issues which is why we are recommending various long-term policy reforms to address aging and productivity.
But it tells us another thing which is that extreme weather occurrences have a serious effect on the economy. You know, extreme weather occurrences have repeated much more frequently in the last 20 years then they had in the previous century. I think that's, you know, a valid reason to wonder about climate change and how to deal with it. Incidentally, one of the tax recommendations that we put in this report deals with carbon tax.

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