Fed policymakers will meet June 18-19 and may provide some hint of their intentions. Chairman Ben Bernanke will also hold a press conference after the meeting concludes.

Despite the drag from higher taxes and spending cuts, the IMF paints a much brighter picture of the U.S. economy.

A year ago the IMF warned that the recovery was "tepid," job growth was slow and U.S. households were still cutting debts.

Now, it sees consumers in better shape and the job market slowly strengthening. After the impact of the tax increases and spending cuts fade, growth should accelerate next year to 2.7 percent. That forecast also assumes that Congress and the White House agree to lift the government's borrowing limit later this year.

Still, the IMF expects unemployment will fall only gradually over the next two years. It forecasts unemployment will average 7.5 percent this year and fall to an average of 7.2 percent in 2014.

The unemployment rate is currently 7.6 percent â¿¿ 0.6 percentage points lower than a year ago.

The economy is also being held back by weakness overseas, the report said, which are slowing U.S. exports, particularly to Europe.

Copyright 2011 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

If you liked this article you might like

What's Behind the Surge in Energy Stocks

Hillary Clinton Says Prosecuting Individuals is Key to Wall Street Reform