IMF Executive Board Concludes 2020 Article IV Consultation with the United States

IMF News, August 10, 2020

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Published: August 10, 2020

Economic impact of COVID-19 and near-term outlook

135,000 Americans have tragically lost their lives and many more have become seriously ill.
The unemployment rate now stands at 11.1 percent and 15 million Americans have lost their job over the past four months.
The economy is expected to contract by around 6½ percent in 2020 and expand by around 4 percent in 2021.
Job losses have disproportionately affected lower income households, those without a college education, women, African Americans and Hispanics, many of whom have insufficient buffers to cope with the unprecedented size of the economic shock.

Fiscal and subnational fiscal developments

Federal government primary deficit is expected to rise from around 3 percent of GDP in FY2019 to 16 percent of GDP in FY2020.
Federal debt is expected to approach 100 percent of GDP by end-2020.
State and local government deficits are also expected to more-than-double in size this year.
Fiscal actions by Congress provided substantial assistance to households, businesses and state and local governments.

Monetary and financial sector response

On March 15 the Federal Open Market Committee (FOMC) lowered the federal funds target range to 0 to ¼ percent and indicated it would maintain rates at this level until it is confident that the economy has weathered recent events and is on track to achieve the Fed’s maximum employment and price stability goals.
The Fed significantly increased purchases of Treasury and agency mortgage backed securities, launched new credit facilities to backstop institutions and ensure smooth functioning of a range of financial markets, and expanded bilateral swaps with a range of central banks to normalize conditions in dollar funding markets.
Directors appreciated the Federal Reserve’s decisive response, which helped maintain the smooth functioning of financial markets, ease financial conditions, and relieve strains in global dollar funding markets.
Directors saw scope for more action, including through expanded asset purchases and more explicit forward guidance, while closely monitoring potential risks to financial stability.

Executive Board Assessment and recommendations

Directors broadly agreed with the thrust of the staff appraisal and commended authorities for their swift, extraordinary policy response to protect livelihoods and vulnerable sectors.
Directors noted the recovery will likely be gradual and subject to significant risks and uncertainty, and underscored the need to deepen public health efforts while continuing to use all policy tools to support the recovery and mitigate scarring effects.
Fiscal policy guidance:
- An additional sizable fiscal package would be needed to strengthen health preparedness and sufficiently boost demand, including through increased federal transfers to state and local governments.
- Once the pandemic is fully contained, medium-term fiscal adjustment will be necessary to put debt on a downward path.
- Directors welcomed the authorities’ commitment to high levels of transparency and accountability in the use of public resources.
- Directors recommended gearing fiscal policy toward strengthening the social safety net, incentivizing work, expanding healthcare coverage, and broadening access to quality education.
Trade and external policy:
- Directors encouraged the U.S. authorities to reverse trade restrictions and to work constructively with partner countries to resolve trade tensions and modernize the multilateral trading system.
- Many Directors noted that the planned introduction of currency-based countervailing duties could increase policy uncertainty, have negative spillovers, and undermine the multilateral trading and international monetary systems.
Financial stability and regulation:
- Directors observed the U.S. financial system has been resilient but called for continued vigilance given risks from the recession, rising corporate leverage, continued migration of activity to nonbank financial institutions, and complex interlinkages among institutions and markets.
- Recommended actions included preserving bank capital buffers and stringency of prudential requirements, enhancing macroprudential tools, intensifying crisis preparedness, addressing data gaps, considering strengthening institutional arrangements for systemic risk oversight, and introducing a more explicit financial stability mandate for principal regulators.

United States: Selected Economic Indicators (projections and historical)

Real GDP (% change from previous period): 2018: 2.9; 2019: 2.3; 2020: -6.6; 2021: 3.9; 2022: 3.3; 2023: 1.9; 2024: 1.8; 2025:
Real GDP (q4/q4): 2018: 2.5; 2019: -6.9; 2020: 5.1; 2021: 2.8; 2022: 2.0
Output gap (% of potential GDP): 2018: 0.2; 2019: 0.9; 2020: -4.9; 2021: -1.8; 2022: -0.6; 2023: -0.4; 2024: -0.5
Unemployment rate (q4 avg.): 2018: 3.8; 2019: 3.5; 2020: 9.7; 2021: 7.4; 2022: 5.7; 2023: 4.6; 2024: 4.3; 2025: 4.2
Current account balance (% of GDP): 2018: -2.2; 2019: -2.1; 2020: -2.0
Fed funds rate (end of period): 2018: 2.2; 2019: 1.7; 2020: 0.1
Ten-year government bond rate (q4 avg.): 2018: 3.0; 2019: 0.8; 2020: 1.0; 2021: 1.5
PCE Inflation (q4/q4): 2018: 1.4; 2019: 0.7; 2020: 2.1
Core PCE Inflation (q4/q4): 2018: 1.6
Federal fiscal balance (% of GDP): 2018: -3.8; 2019: -4.6; 2020: -18.0; 2021: -10.4; 2022: -5.4; 2023: -4.5; 2024: -4.7
Federal debt held by the public (% of GDP): 2018: 77.4; 2019: 79.2; 2020: 99.6; 2021: 107.4; 2022: 106.8; 2023: 108.3

IMF Communications Department, Press Release No. 20/279, August 10, 2020.

IMF Executive Board Concludes 2020 Article IV Consultation with the United States

Source details

Other formats

Bibliographic details

Economic impact of COVID-19 and near-term outlook

Fiscal and subnational fiscal developments

Monetary and financial sector response

Executive Board Assessment and recommendations

United States: Selected Economic Indicators (projections and historical)

References