IMF's Christine Lagarde to U.S.: Eliminate Debt Ceiling Threat, Taper Carefully

The IMF head praises the U.S. budget deal but also warns Fed and Congress of potential missteps.

International Monetary Fund managing director Christine Lagarde arrives for a session of the European Economic and Social Committee at the European Parliament in Brussels, Tuesday, Dec. 10, 2013.
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In the wake of Congress' first budget deal since 2011, one of the world's top economic leaders offered both praise and advice to U.S. policymakers Wednesday.

"To have a deal on the budget, no matter what the deal is ... is a good indication that there is willingness to actually work in a more orderly fashion, and it is, I hope, one step of many," said Christine Lagarde, managing director of the International Monetary Fund, at an event at the National Press Club in Washington, D.C.

As the world's largest economy, the U.S.'s domestic policy debates can have global consequences. Notably, uncertainty in U.S. fiscal policy has created uncertainty in the business world. Though Congress' latest budget deal creates a "loosening of the fiscal corset," Lagarde added that two actions would further bolster global economic stability: exercising extreme caution in tapering the Federal Reserve's monthly asset buys, known as QE3, and eliminating any threat of hitting a congressionally imposed cap on the nation's borrowing authority.

[READ: World Bank: Economic Growth Will Accelerate in 2014]

"[I]t will be critical to avoid premature withdrawal of monetary support and to return to an orderly budget process, including removing the threat of the debt ceiling," she said.

The U.S. has undergone two major recent impasses over the debt ceiling. Many economists predict that, were the U.S. to hit the debt ceiling, it could have catastrophic global economic consequences.

Meanwhile, central bank tapering from could also threaten developing nations' economic fortunes – not to mention those domestically – if performed too quickly. The World Bank warned in a Tuesday report that if monetary stimulus is unwound too fast, capital flows to developing nations could decline sharply.

Though the U.S. could be a source of economic uncertainty worldwide in the near future, at least one area is of little concern to Lagarde: the stock market. The IMF head expressed little worry when asked about a stock market correction that some analysts say is a distinct possibility for 2014.

"I don't think a slight correction of the stock market would have a major impact outside the U.S.," she said.

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