The International Monetary Fund said on Tuesday it had cut its growth forecasts for the U.S. economy to 2.1 percent in 2017 and 2018, dropping its assumption that the Trump administration's tax cut and fiscal spending plans would boost growth.
In a statement following a review of U.S. economic policies, the IMF said the Trump administration's push for annual growth of over 3 percent for a sustained period was unlikely to be achieved partly because the labor market is already at a level consistent with full employment.
The IMF in April had forecast U.S. growth of 2.3 percent for 2017 and 2.5 percent for 2018, based partly on gains from expected tax cuts and new federal spending. But given the lack of details on the U.S. administration's "still evolving policy plans" the IMF said it decided to remove the assumed stimulus from its forecasts.
The IMF said the Trump administration's latest budget plans would place a disproportionate share of spending cuts onto low- and middle-income households, adding "this would appear counter to the budget's goals of promoting safety and prosperity for all Americans."
Instead, the Fund suggested a tax policy that would improve the federal revenue-to-GDP ratio, more balanced cuts that strengthen the social safety net's efficiency, and efforts to contain healthcare cost inflation.