The International Monetary Fund said President Trump’s plans to cut regulations and taxes might encourage companies to make risky investments of the kind that preceded the financial crisis in 2008.
The comment came Wednesday in the newest edition of the IMF’s Global Financial Stability Report, which also said the financial system has gotten more stable in recent months, as economic growth strengthened and interest rates rose, which helped banks.
Trump’s proposals are intended to boost investment, growth and employment and would include changes like reducing taxes on foreign earnings brought back to the U.S. IMF experts say some of the money is likely to flow into sectors with significant debts.Those firms might have difficulty repaying loans if inflation and interest rates rise sharply from their current unusually low levels.
The IMF also warned against slashing banking regulations, which were tightened in the wake of the financial crisis in the hope of preventing future problems. The fund said there is room for “fine-tuning” but urged Washington not to undertake “wholesale” weakening of the rules.
Tuesday, IMF economists said the global economy will grow a bit faster than earlier predictions amid buoyant financial markets and improved manufacturing and trade.They warned that rising protectionism could hurt trade and economic growth.
The reports come as financial and economic officials from around the world gather in Washington for this week’s meetings of the IMF and the World Bank.