The International Monetary Fund thinks the United States economy is currently not strong enough to fully recover without support from the Federal Reserve. In the recently released “World Economic Outlook” report for September, the IMF said that fiscal policy will tighten further in 2012, as the Federal Reserve remains on the sidelines. IMF staff analysis suggests that this switch from fiscal stimulus to consolidation will dampen short-term activity. However, the Federal Open Market Committee is meeting this week and will determine if further stimulus is necessary from the Fed. Among the advanced economies, real GDP growth in the United States is projected to pick up very gradually from about 1% in the second quarter of 2011 to about 2% later in 2012. However, this fragility faces the risk of being shattered. “A strong increase in credit risk could quickly morph into a liquidity shock, as global investors take flight into precious metals and cash: This could occur if there were major political deadlock on how to move forward with consolidation in the United States or if the euro area crisis were to take a dramatic turn for the worse,” the report states. “The global repercussions of such shocks would likely be very severe.” The IMF report adds that house prices show no signs of stabilizing in key crisis-hit economies such as the United States and Spain. “A large overhang of unsold properties with underwater mortgages continues to present a major downside risk to consumption in the United States,” the report states, noting that not all property markets are doing so poorly. “House prices are rising again in other advanced economies, such as France and Germany, and remain high in Canada,” it adds. “However, households everywhere have recently suffered significant losses in stock market wealth.” Write to Jacob Gaffney. Follow him on Twitter: @JacobGaffney

3d rendering of a row of luxury townhouses along a street

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