UPDATE 1-IMF says sluggish US growth requires easy money policy

* IMF: US needs credible debt cut plan, markets skeptical

* Treasury reasserts will meet G20 deficit commitments

* IMF endorses easy-money policy for US, cites ample slack

* White House readies new debt plan after averts shutdown
(Adds U.S. Treasury comment on deficit, background, byline)

By Glenn Somerville

WASHINGTON, April 11 (Reuters) – The U.S. economic recovery
is so sluggish that the Federal Reserve needs to keep easy
money policies in place while the government comes to grip with
its debts, the International Monetary Fund said on Monday.

“A credible strategy to stabilize public debt in the medium
term and a down payment on fiscal consolidation in 2011 are
urgently needed,” the IMF said in its World Economic Outlook.

The issue of how to ratchet down the U.S. debt is at near
fever-pitch politically, with opposition Republicans in
Congress trying to compel the Obama administration to deeper
spending cuts.

A government shutdown was narrowly averted at the weekend
when negotiators for the Republicans and Democrats reached a
final-hour compromise, only to pivot toward a new budget battle
that will hinge on the sensitive issue of a fast-approaching
deadline for raising the legal U.S. borrowing limit.

In a sign of market nervousness about U.S. indebtedness,
the world’s largest bond fund PIMCO started betting against
U.S. government debt last month, a statement on its holdings
indicated. For details, see [ID:nN11292556]


The IMF noted that the U.S. budget deficit in 2011 is
expected to hit 10.75 percent of national output, the highest
among the developed economies.

“The United States remains committed to meeting the G20
target of halving the deficit between 2010 and 2013, but the
high deficit this year may make this difficult,” it said.

In response, the U.S. Treasury reaffirmed that it plans to
push ahead in efforts to cut gaping deficits.

“We will meet our commitments to the G20 in Toronto and
look forward to working with Congress to establish a credible,
multiyear path to ensure our fiscal sustainability while
delivering strong economic growth,” a spokeswoman said.

U.S. President Barack Obama on Wednesday will lay out a
long-term plan for deficit reduction. The administration has
been wary of tightening the budget too precipitously for fear
of undermining the economy’s recovery.

The IMF said the economy should expand 2.8 percent in 2011
and 2.9 percent in 2012. The 2011 forecast was revised down
from 3 percent growth the IMF forecast in January, but 2012’s
forecast was revised up from a previous 2.7 percent.

It stressed that risks to its forecast abounded, including
a spike in oil and commodity prices, Middle East and North
African political unrest, debt problems in Europe and the
persistent downward pressure on U.S. home prices.

The IMF noted there still was substantial slack in the
economy. It said that suggested inflation would stay subdued
and it called for keeping interest rates low.

“The right policy mix for the United States is one of
continued monetary accommodation alongside moves to put fiscal
balances on a stronger footing,” the IMF said.

The U.S. Federal Reserve has held overnight rates near zero
since December 2008 and is on course to complete a $600 billion
bond-buying program by the end of June.


In the case of Canada, the IMF revised down its 2011 growth
estimate to 2.8 percent from January’s 2.9 percent forecast but
foresaw 2012 growth of 2.6 percent instead of the 2.3 percent
it thought earlier.

It said the strength of Canada’s dollar currency (CAD=: Quote, Profile, Research),
known as the loonie, was a drawback for the country’s growth
prospects. Canada also faces a risk from a possible
deterioration in strong housing markets and hefty levels of
household debt.

It praised Canadian authorities for having proposed “a sound
and credible plan to return to budget surpluses beginning in
fiscal year 2015” but cautioned that an aging population and
rising health care costs will require more effort to keep the
country’s finances stable.

UPDATE 1-IMF says sluggish US growth requires easy money policy