* IMF cuts 2014 U.S. growth forecast to 2 percent
* Full employment will not return until end-2017
* Low inflation should allow Fed to keep rates low
* Fund sees U.S. potential growth at 2 percent
(Adds details on Fed from IMF news conference)
By Anna Yukhananov
WASHINGTON, June 16 The International Monetary
Fund cut its growth forecast for the United States on Monday and
said the economy would not reach full employment until the end
of 2017, allowing interest rates to be held near zero for longer
than financial markets expect.
In its annual health check of the U.S. economy, the IMF cut
its 2014 forecast to 2 percent from the 2.8 percent it predicted
in April, due to a weak first quarter. It kept its 2015 forecast
unchanged at 3 percent, as job creation picks up after a harsh
"Recent data ... suggest a meaningful rebound in activity is
now underway and growth for the remainder of this year and 2015
should well exceed potential," the IMF said.
Yet the country's potential growth should only be around 2
percent going forward, below historical averages, as the
population ages and productivity growth slows, it added.
To help support the economy and fight persistently high
poverty, the IMF urged the United States to boost the minimum
wage. The federal minimum wage is now at 38 percent of the
median wage, below most international standards, it said.
The IMF said its forecasts show the economy would only
return to full employment by the end of 2017, with inflation
remaining low. "If true, (Fed) policy rates could afford to stay
at zero for longer than the mid-2015 date currently foreseen by
markets," it said.
At the same time, the IMF warned that financial markets
could be too complacent about possible volatility as U.S. rates
rise, with the Fund's managing director, Christine Lagarde,
citing a "halo of uncertainty" around the outlook.
The IMF said the Fed should consider further changes to its
communication to better guide markets, including holding a news
conference after each meeting of its policy-setting committee
and publishing quarterly reports on monetary policy. It
currently holds news conferences quarterly and issues monetary
policy reports to Congress twice a year.
"The (Fed's policy-setting panel) could provide greater
clarity about how financial stability considerations figure into
its monetary policy calculus," the IMF said. Fed policymakers
meet on Tuesday and Wednesday to consider their monetary policy
The IMF urged the United States to increase spending on
infrastructure and education and change parts of its tax system,
including boosting the federal gasoline tax and reinstating the
tax credit for research and development, to help spur growth.
In the future, policymakers should also reform corporate
taxes, introduce a carbon tax and move toward a federal
value-added tax, the IMF said.
A greater reliance on growth-enhancing fiscal policies could
allow the Fed to retreat more quickly from its extraordinary
monetary stimulus, it added.
"This would be the best policy mix from an economic
perspective but, regrettably, political agreement on such an
approach remains elusive," the IMF said.
(Additional reporting by Krista Hughes and Moriah Costa;
Editing by Paul Simao, Tim Ahmann and Meredith Mazzilli)