The U.S. economic recovery is building thanks to the government's helping hand, but it is not yet clear how well growth will hold up once those supports are removed, the OECD said in a report released on Wednesday.
In its economic outlook, the Organization for Economic Cooperation and Development said U.S. economic growth would likely average 3.2 percent this year and next after a 2.4 percent decline in 2009.
It is unclear if output growth is yet self-sustaining and how the economy will respond as the effect of the stimulus ebbs, the Paris-based OECD said.
Unemployment will probably remain stubbornly elevated, and there is a risk that high long-term joblessness will lead to a permanently higher level of unemployment.
Echoing the view of the U.S. Federal Reserve, the OECD said inflation will probably remain low because of high unemployment and idle factory space.
Very low inflation looks to be a greater near-term concern than higher inflation, the OECD said.
TIME FOR CANADIAN RATE HIKE
As for Canada, the OECD called its recovery vigorous and admonished the country's central bank to start raising interest rates from a record low of 0.25 percent.
The Bank of Canada should start normalizing its policy rate without delay and tighten gradually throughout the projection period, OECD said.
Likewise, the government should let temporary stimulus measures expire to avoid overstimulating the economy.
It forecast 2010 gross domestic product growth at 3.6 percent, and 2011 at 3.2 percent. That follows a 2009 GDP decline of 2.7 percent.
The OECD also warned about a frothy Canadian housing market and said households could come under debt servicing strain as interest rates rise.
(Reporting by Emily Kaiser; Editing by James Dalgleish)