IMF Executive Board Concludes 2017 Article IV Consultation with the United States
IMF News, July 27, 2017
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- Published: July 27, 2017
Overview and near-term conditions
- The United States is in the longest expansion since 1850.
- The unemployment rate has fallen to 4.4 percent and job growth continues to be strong.
- The economy experienced a temporary growth dip in early 2017 but momentum has picked up.
- The economy is expected to grow at 2.1 percent this year and next.
Inflation and labor market
- Labor market indicators suggest the economy could be effectively at full employment.
- Inflation has remained subdued and has weakened moderately in recent months.
- Wage indicators have shown a modest acceleration.
- Over the next 12–18 months PCE inflation is expected to slowly rise above 2 percent, before returning to the Federal Reserve’s medium-term target of 2 percent.
Growth outlook and risks
- Two-sided risks to the growth outlook:
- Downside: A medium-term path of fiscal consolidation (such as the expenditure based consolidation proposed in the budget) would address medium-term fiscal imbalances but result in a growth rate below staff’s baseline.
- Upside: Spending reductions could be less ambitious and tax reforms could lower federal revenues, providing stimulus and raising near-term growth.
Longer-term structural challenges and reform priorities
- Confluence of forces weighing on long-term prospects: technological change reshaping the labor market, low productivity growth, rising skills premia, and an aging population.
- If unchecked, these forces will drag down potential and actual growth, diminish gains in living standards, and worsen poverty.
- Consultation focused on policies to raise productivity and labor force participation, reduce poverty and income polarization, and restore adaptability and dynamism.
Executive Board assessment and policy recommendations
- Directors commended strong performance: rebound in growth, improved consumer confidence, low unemployment, and steady job increases.
- Directors noted medium-term challenges: rising public debt, potential growth below historical averages, declining labor force participation, and income growth that is not broadly shared.
- Monetary policy:
- Economy is close to full employment and inflation is near the Fed’s 2 percent mandate.
- Policy rates should continue to rise gradually and remain data‑dependent.
- Well‑communicated plans for unwinding the Federal Reserve’s holdings of securities have been important; Directors welcomed the recent addendum to the policy normalization principles and plans.
- Need to be mindful of potential global spillovers as normalization proceeds.
- Recommended reform package components:
- Build a more efficient tax system.
- Establish a more effective regulatory system.
- Raise infrastructure spending.
- Improve education and develop skills.
- Strengthen healthcare coverage while containing costs.
- Offer family‑friendly benefits.
- Maintain a free, fair, and mutually beneficial trade and investment regime.
- Reform immigration and welfare systems.
- Fiscal guidance:
- Reforms should be subsumed under a gradual but steady fiscal consolidation path given elevated public debt and deficit levels, and public spending pressures from population aging and rising interest rates.
- Many Directors urged that tax reform should lead to an increase in the revenue‑to‑GDP ratio and that the burden of fiscal adjustment should not fall disproportionately on low‑ and middle‑income households.
Financial sector and supervision
- Financial system generally healthy.
- Directors urged close monitoring of rising vulnerabilities in corporate and household credit markets.
- Implement remaining recommendations of the 2015 Financial Sector Assessment Program.
- Important gains since the global financial crisis in strengthening financial oversight structure; some aspects can be finetuned and regulatory structure simplified as proposed by the authorities.
- Emphasis that the current risk‑based approach to regulation, supervision, and resolution should be preserved to safeguard financial stability while facilitating growth.
- Directors welcomed the authorities’ commitment to maintain a leading role in financial regulatory discussions in international forums.
United States: Selected Economic Indicators (percentage change from previous period, unless otherwise indicated)
- Projections and historicals shown for selected series:
National production and income
- Real GDP: 1.6; 2.1; 1.9; 1.8; 1.7
- Net exports 2/: -0.1; -0.3; -0.2; 0.0
- Total domestic demand: 2.3; 2.0
- Private final consumption: 2.7; 2.2
- Public consumption expenditure: 0.8; 0.5; 1.4; 0.7; 0.3
- Gross fixed domestic investment: 4.3; 4.0; 2.9; 2.4; 2.6
- Private fixed investment: 4.7; 3.9; 2.8; 2.5
- Equipment and software: -2.9; 3.6; 4.9; 3.2
- Intellectual property products: 4.1; 3.8; 4.6
- Nonresidential structures: 6.4; 1.2; 0.6
- Residential structures: 5.5
- Public fixed investment: 3.4
- Change in private inventories 2/: -0.4
- Nominal GDP: 3.0; 3.7
- Personal saving rate (% of disposable income): 5.7; 5.1; 5.3; 5.2; 4.8
- Private investment rate (% of GDP): 16.3; 16.7; 17.0; 17.1
- Unemployment and potential output
- Unemployment rate: 4.4; 5.0
- Labor force participation rate: 62.8; 62.9; 62.7; 62.4; 62.2; 61.9
- Potential GDP
- Output gap (% of potential GDP): 0.1; 0.2
- Inflation
- CPI inflation (q4/q4): 1.3
- Core CPI Inflation (q4/q4)
- PCE Inflation (q4/q4)
- Core PCE Inflation (q4/q4)
- GDP deflator
- Interest rates (percent)
- Fed funds rate: 0.4; 1.0
- Three-month Treasury bill rate: 1.5
- Ten-year government bond rate: 3.5
- Balance of payments
- Current account balance (% of GDP): -2.4; -2.5; -3.0; -2.8
- Merchandise trade balance (% of GDP): -4.1; -4.4; -4.6; -4.8; -4.9; -5.1
- Export volume (NIPA basis, goods): 4.2; 3.1
- Import volume (NIPA basis, goods): 4.5
- Net international investment position (% of GDP): -44.8; -44.5; -45.7; -46.9; -48.2; -49.3; -50.3
- Saving and investment (% of GDP)
- Gross national saving: 18.5; 17.7; 17.6; 17.4; 17.8
- General government: -1.8; -1.6; -1.3; -1.4; -1.5
- Private: 20.2; 19.3; 18.9; 18.8; 19.1; 19.4
- Personal
- Business: 15.9; 15.5; 14.9; 15.2; 15.6
- Gross domestic investment: 19.7; 20.1; 20.4; 20.5; 20.6
- Public: 3.3
Sources noted in the original release: BEA; BLS; FRB; Haver Analytics; and IMF staff estimates.
- Footnotes preserved from the source:
- 1/ Components may not sum to totals due to rounding.
- 2/ Contribution to real GDP growth, percentage points.
Press Release No. 17/301, July 27, 2017.