Economy Watch: IMF Warns US About Fiscal Cliff

The International Monetary Fund, through its Mission to the United States, said in a press statement that the U.S. economic recovery "remains tepid and subject to elevated downside risks."

By Dees Stribling, Contributing Editor

The International Monetary Fund, through its Mission to the United States, said in a press statement on Tuesday—pointedly ahead of July 4—that the U.S. economic recovery “remains tepid and subject to elevated downside risks.” Why is that? Because of “financial strains in the euro area and uncertainty over domestic fiscal plans.” (That is, a dysfuctional Congress.)

The same could have been said this time two years ago, or last year. But the IMF went on to be a little more specific in its warning. “It is critical to ensure a pace of fiscal adjustment in the short run that is supportive of the recovery, removing the threat of a very large fiscal adjustment in 2013, and to adopt a credible medium-term plan restoring fiscal sustainability,” the international organization asserted.

By “fiscal adjustment,” the IMF was referred to what everyone else is starting to call the “fiscal cliff.” Because of indecision and quarreling in Congress, taxes are slated to go up in early 2013, just as spending is “automatically” slated to be cut, which the IMF considers a wicked anti-Keynesian brew that will upset the country’s tepid recovery. “A fiscal consolidation of around 4 percent of GDP in 2013 (in line with current law) could reduce annual growth to well below 1 percent, with negative growth early next year and significant negative repercussions on an already fragile world economy,” the IMF warned.

FHFA’s REO pilot program deemed a success

The Federal Housing Finance Agency said on Tuesday that the winning bidders in a REO pilot program have been chosen and that the transactions are expected to close early in the third quarter. Market response, according to the agency, has been “robust” with strong qualified bidder interest.

FHFA launched the pilot program in late February, and during the second quarter solicited bids from investors to purchase about 2,500 single-family Fannie Mae foreclosed properties. Under the program, Fannie Mae offered pools of properties for sale in geographically concentrated locations across the country.

“FHFA undertook this initiative to help stabilize communities and home values in areas hard-hit by the foreclosure crisis,” Edward J. DeMarco, acting director of agency, noted in a statement. It isn’t clear yet, however, whether the program will be enlarged beyond the pilot project and if so, on what timetable.

Office vacancies static

Ries Inc. reported on Tuesday that the national office vacancy rate didn’t budge during the second quarter of the year, staying at 17.2 percent. Nationwide, office markets absorbed 4.138 million square feet of space during 2Q, with asking and effective rents both edging up by 0.3 percent (though they were up 0.5 percent and 0.6 percent respectively during the first quarter). Only about 1.6 million square feet of new office space was completed during the second quarter, Reis added.

Wall Street had a listless July 3, which was a shortened trading day ahead of the Independence Day holiday, but ended up. The Dow Jones Industrial Average gained 72.43 points, or 0.56 percent, while the S&P 500 was up 0.62 percent and the Nasdaq 0.84 percent.

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