Top IMF officials have called on the U.S. to reduce its fiscal deficit and addressed its “increasing” debt burden as they focus on President Donald Trump’s massive tax cuts.
"The U.S. fiscal deficit is too big and needs to be lowered," Gita Gopinath, the first deputy managing director of the International Monetary Fund, told the Financial Times this week.
She also warned that despite “positive developments,” such as tariffs allocated by the Trump administration to China, the world’s largest economies are still affected by “very high” trade policy uncertainty.
Gopinath's comments were posted in Moody's depriving the United States of the last original triple A credit rating due to concerns about the country's growing debt. Trump's proposal to extend the 2017 tax cuts has increased these concerns and has caused uneasiness among investors.
The government said cuts - coupled with deregulation - would pay for themselves at higher growth, but neither Moody's nor the financial markets convinced. The rating agency said last week that proposed legislation said Trump called it a "big and beautiful bill" that raised the U.S. deficit from 6.4% last year to 9% by 2035.
Treasury Secretary Scott Bessent told NBC Sunday that Moody's downgrade was a "lagging indicator" and blamed the Biden administration for its fiscal situation. He added that the government is “decided to reduce spending and develop the economy.” He had previously said he would reduce the deficit to 3% by the end of Trump's term.
But Gopinath noted that U.S. debt to GDP is "increasingly growing", adding: "It should be that we have fiscal policy in the United States, which is with reducing debt over time." According to the Congressional Budget Office, federal government debt held by the public accounts for 98% of GDP in fiscal 2024, compared with 73% a decade ago.
Although the International Monetary Fund said last month that the U.S. fiscal deficit would fall this year as long as tariff revenues grow, these forecasts do not take into account Trump's tax bill, which is being conducted through Congress. Gopinath added that Bessent made a "clear call" to alleviate the fiscal deficit was right.
Trump has put pressure on the House, and he has a majority in the House in support of legislation that would otherwise increase voters’ tax bills.
Fears over the deficit and Moody's downgrade lowered the dollar and lowered prices in the treasury market and raised prices. The 30-year bond yield rose to 5.04% on Monday, the highest level since 2023.
A larger deficit means that the government will have to sell more bonds as foreign and domestic investors begin to question the stability of the U.S. market.
The IMF lowered its U.S. growth forecast by nearly a percentage point in April, namely 2025, while lowering its global growth forecast to 2.8% as it incorporates Trump's tariff impact.
Since then, Trump has announced sharp cuts to the U.S. fees as China and the U.S. agreed to cut their respective tariffs by 115 percentage points in 90 days.
"The tariff pause with China is a positive development," Gopinath said. But she stressed that the effective tariff rate in the United States is still far higher than last year, while China's high taxation has only stopped.
She said the first-quarter GDP figures roughly matched the IMF expectations, adding that the data is still difficult to read as businesses are rushing to buy supplies before introducing Trump’s tariffs.
"It takes a while before the impact of all these developments works through the data," she said. "The average tariff rate that is lower than the average tariff rate in our (April) is definitely positive...but the level of uncertainty is high and we have to see what the new interest rate will be."
Other reports by Kate Duguid in New York