The Fund estimates that policy tightening will reduce output by 1% by 2014 and that unemployment will also rise.
As a result, the housing bubble continued to inflate until Fed tightening undermined expected nominal output growth.
He noted the MPC is a long way from tightening because of the levels of output and employment, not their growth rates.
Paul Krugman, the US economist, has shown there is a direct correlation between austerity and the growth rates of eurozone economies, with Greece suffering both the biggest drop in output and the largest amount of budget tightening.
Mervyn King has responded to these criticisms and I agree with him: not doing QE would push us back into recession at a time when output is slowing and fiscal policy is tightening.
European governments are tightening fiscal policy well before their economies have recovered output lost in the recession.The more the economic outlook turns Japanese, the harder it will be for equity markets.
The IFS said that all parties were committed to a fiscal tightening worth £71bn in today's terms, or 4.8% of fiscal output.
"But rising input and output prices also point to greater inflationary pressure, which will likely prompt more tightening measures in the coming months".
"Without such policy action, members saw a risk that tightening credit conditions and an intensifying housing correction would lead to significant broader weakness in output and employment," the report said.
Despite a fall in gasoline demand in the United States and Europe, global oil markets are tightening because demand for energy from Asian countries, particularly China and India, is rising at surprisingly strong rates even as output is declining from several important producing countries.
Growth in China's industrial output slowed to an annualized 16.7percentt in July, from 19.5percentt in June, government data shows, as government tightening efforts kicked in.
