This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. Find out more here.

IMF backs Operation Twist amid warning on US fiscal policy

  • Print
  • Comment

The International Monetary Fund has lended its support to the Federal Reserve’s Operation Twist, but cautions that US fiscal policy needs to be “carefully calibrated”.

In its Shifting Winds, New Policy Challenges report, which presents the regional outlook for the western hemisphere, the fund says US monetary policy looks likely to support growth over the coming years.

“The US Federal Reserve’s recent decision to maintain interest rates at historically low levels until at least mid-2013 and extend the maturity of its security holdings (Operation Twist) is appropriate,” the paper states.

The Fed unveiled Operation Twist last month. It will see the central bank release £258.2 billion of short-term dated US Treasuries then buy back long-dated Treasuries of the same value.

However, the IMF adds that the bank should consider “further unconventional measures” to support economic recovery, should the need arise.

Looking to the US’ fiscal policy, the Washington-based lender says “a credible medium-term plan that is sufficiently back-loaded, so as not to jeopardise a weak recovery, remains urgently needed”.

It claims that the American Jobs Act, which was proposed by president Barack Obama last month, could be effective in offsetting the fiscal tightening lined up for next year, while being budget-neutral.

But the IMF’s report notes the US still needs to develop an adjustment plan that will stabilise its debt over the medium term. It recommends this plan includes revenue-raising measures, such as fewer tax loopholes and more tax for higher-income households, and changes to entitlement programmes like lifting the retirement age.

  • Print
  • Comment

Daily Email Updates
If you enjoyed this article, sign up to receive the latest news and analysis from Money Marketing.

Money Marketing Awards 2015
Put your firm forward as the leading practitioner in your field. Adviser and Advertising categories are open to entries - Enter Now.

Have your sayEdit my profile/screen name

You must sign in to make a comment

Fund Data

Editor's Pick


Are you prepared to process insistent client business?

Job of the week

Latest jobs

View all jobs

Most recent comments

View more comments