The US 2014 growth forecast is good, says US Treasury Secretary Jacob. J. Lew, who expects GDP (gross domestic product) growth of 3% this year.
At the 44th World Economic Forum Annual Meeting in Davos-Klosters, Switzerland, Lew said that strong core growth, an end to the fiscal drag, and rising confidence are pushing the US economy forward.
Lew said the American economy expanded by approximately 2% in 2013, despite contractionary fiscal policy reducing growth by 1.5%.
Now that the fiscal drag is over, Lew said regarding GDP growth “We are in the twos and we think it is reasonable to talk about 3%.”
Congress must sort the debt limit issue promptly
Lew urged the US Congress not to create another “false crisis” by failing to increase the debt limit soon.
After using extraordinary measures, the US Treasury will reach the end of its borrowing authority on the last day of February 2014.
If Congress fails to act by the end of February, they will have caused another “self-inflicted wound” to the economy of their own country, as well as economies around the world, Lew warned.
Lew emphasized that it is Congress’ responsibility to raise the debt limit, and that President Obama will not negotiate under the threat of a default. He added “Not negotiating means not negotiating. I think Congress understands the President’s position.”
US long-term employment still high
Evening though the US economy is gathering steam, unemployment benefits should be renewed, Lew said, because long-term unemployment remains stubbornly high.
Obama is working with business leaders to end the stigma associated with long-term unemployment, and to improve worker retraining programs.
The US financial system is much stronger today than it was in 2008. There are better capital levels, he cited the creation of resolution processes for financial institutions, the Volcker rule, and stress tests to limit risk-taking. The Volcker rule has done away with commercial banks gambling with depositors’ money.
However, Lew admitted there is still further work to be done, such as on cross-border resolution processes for multinational institutions and the shadow banking system.
US Secretary of Commerce, Penny Pritzker, also spoke at the World Economic Forum yesterday. She said corporate tax reform in America is important, but immigration reform is a higher priority. The highest priority for American business leaders are trade agreements, she added.
US Trade Representative, Michael Froman, said that the US boom in energy production has made the country increasingly attractive for manufacturers worldwide.
Froman and his European Union counterparts admit there are obstacles to the trans-Atlantic free trade agreement. However, he added that a European decision to open public consultations to settle investment disputes will not delay the completion of the treaty.
Froman believes the broad agreement is “coming along well”. Although the US and the EU have differences in on several issues, he added that Washington is very committed to bridging them.