IMF head urges swift hike to debt ceiling

The head of the International Monetary Fund on Thursday urged the United States to quickly raise its debt ceiling, while putting a better medium-term debt reduction strategy in place.

IMF Director Christine Lagarde urged the U.S. to stop making “avoidable policy mistakes,” an allusion to the 2011 debt-ceiling standoff that crashed equity markets and cost $19 billion, and the "fiscal cliff" tax standoff that injected uncertainty into the economy late last year.

“For the United States we think that all sides should pull together in the national interest, avoid further avoidable policy mistakes — that is failing to agree on increasing the debt ceiling on time — and prior to that preferably — and reaching an agreement medium term debt reduction,” Lagarde said in a New Year’s press conference.

She said that in the U.S., “spending cuts are necessary.”

“It’s obvious,” she added. “They should be sufficiently anchored in order to remove uncertainty around them. They should clearly touch on entitlements among other things.”

Lagarde said that globally, economic collapse from the 2008 financial crisis and years of turmoil in the European Union has been avoided.

“Often at the last hour the right decisions have been made,” she said. “Our sense is that there is still a lot work to be done.”

She urged financial regulators not to “relax.”

“We sense a sign of waning commitment,” she said. “We believe it is important for the regulators to resist aggressive industry pushback.”

She said that regulations on the shadow banking system and on derivatives need to be accelerated.