WASHINGTON (AP) — The head of the International Monetary Fund warned policymakers on Wednesday to avoid mistakes that could derail a fragile global recovery.
IMF Managing Director Christine Lagarde said that Congress should promptly increase the U.S. government's borrowing limit and the Federal Reserve should avoid withdrawing its financial support too rapidly.
Lagarde noted that the world economy is still feeling the impact of the Great Recession and 2008 financial crisis.
"The crisis still lingers. Yet, optimism is in the air," Lagarde said in a speech at the National Press Club. "The deep freeze is behind and the horizon is brighter."
Lagarde said that the IMF will update its World Economic Outlook next week and the revision will show slightly stronger growth than the last forecast the IMF made in October.
"Momentum strengthened in the latter half of 2013 and should strengthen further in 2014, largely due to improvements in the advanced economies," she said.
But Lagarde cautioned that there were still risks. She specifically mentioned the threat of deflation, a period of falling prices that can freeze economic activity. When it happens, consumers and businesses postpone purchases because they are expecting prices to drop further.
She noted that many nations currently had inflation running below the targets set by central banks. A key inflation gauge in the United States shows prices have risen less than 1 percent in the past year, well below the Fed's 2 percent target.
"With inflation running below many central banks' targets, we see rising risks of deflation, which could prove disastrous for the recovery," Lagarde said. She called deflation "the ogre that must be fought decisively."