"I can't imagine for a second that the United States would default. But, clearly, this issue of the debt ceiling has to be resolved, as otherwise, there would be a hike in interest rates," said Lagarde, the first woman to head the global lending institution.
"There would be, you know, a much heavier burden to be borne by all the US taxpayers at the end of the day," the newly appointed chief of the IMF told ABC News in an interview.
Lagarde said if one draws out the entire scenario of a default, it would have "real nasty consequences" not just for the US but also for the global economy, in terms of interest hikes and the stock markets taking a huge hit.
The US borrowing limit is USD 14.3 trillion. American officials say the US would begin to default without an agreement by August 2.
"Because the US is such a big player and matters so much for other countries,” argued Lagarde, who took over as managing director on July 5.
But this is unlikely to jeopardize the US as being the largest economy in the world, she noted.
"It would certainly jeopardize the stability, but not just the stability of the US economy, it would jeopardize the stability at large. And that's clearly against the purpose and the mission of the International Monetary Fund," she underlined.
"So we are concerned, and we are very much hoping that a compromise will be found before the deadline," the former French Finance minister said.
I'm glad to see that people are talking again, by the way," she said, referring to the talks between the White House and the Republican-majority House of Representatives.
Lagarde praised her predecessor Dominique Strauss-Kahn, who had resigned amid a high-profile sex scandal, for the exceptional great job as the IMF head.
"No criticism of the job that he has done in this institution, because Dominique Strauss-Kahn has done an excellent job as managing director," she said.
Strauss-Kahn is facing rape charges in a New York court. "But when an institution loses its managing director under such circumstances, there is clearly wounds as a result.
Some people are very hurt. Other people feel betrayed. It's a very strange chemistry of frustration, irritation, sometimes anger, sometimes very deep sadness as well," she said.
However, she conceded that the Strauss-Kahn case has its own implication.
The IMF boss said irrespective of the ultimate outcome of the case, she believes "it has helped women to appreciate that they should speak up whenever something happens to them that is not respectful, that is not tolerable."
