February 15, 2018 / 8:09 PM / in 4 months

IMF's Lagarde: U.S. tax reform may aid growth but hurt deficit, debt

PARIS (Reuters) - U.S. President Donald Trump’s tax reform will help boost U.S. growth in the short term but may have negative consequences such as on the deficit and debt in the medium term, International Monetary Fund chief Christine Lagarde said.

Christine Lagarde, Managing Director of the International Monetary Fund (IMF), attends a conference on "Transforming France’s Economy and Completing the Integration of the Eurozone" with French Treasury and the IMF at the Bercy Ministry in Paris, France, February 15, 2018. REUTERS/Charles Platiau

“The tax reform announced by President Trump will have a stimulus effect on the U.S. economy. It will be in a way positive, especially in the short term,” Lagarde told France 2 television on Thursday.

“It will also probably have a negative aspect, especially in the medium term, because it will contribute to two things,” she said.

“On one side it will revive the deficit and therefore increase the debt. And on the other side, since it will boost an economy already at full capacity, we will probably get wage rises, we will probably get inflation increases and as a consequence a rise in interest rates decided by the Fed... If that is the case, that would mean the end of easy money is probably in sight in the United States.”

Reporting by Ingrid Melander; Editing by Hugh Lawson

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