Transcript of United States 2021 Article IV Consultation Press Conference

July 1, 2021

MR. RICE: Well, good afternoon, Everyone, and welcome to this press conference on behalf of the International Monetary Fund. I am Gerry Rice of the Communication Department. Very nice that you could join us today. We are here for the annual IMF assessment of the U.S. economy; our so called Staff Concluding Statement on our Article IV Consultation. And this is the annual economic assessment we do for our Member Countries, so today is the United States. That assessment has already been shared with many of you, in advance. So, we look forward to your questions in the press conference to follow.

I am delighted to say that we have with us today, the Managing Director of the International Monetary Fund, Kristalina Georgieva. We also have with us, the Acting Director for Western Hemisphere Department, Nigel Chalk, just sitting to Kristalina's left. So, I am going to ask Kristalina to make a few opening remarks. Kristalina and Nigel have had a very busy day today including meeting with Chair Powell, and Secretary Yellen. So, Kristalina will give us a brief summary and then we will take some questions on camera from colleagues from whom I can see here, and online.

With that, Kristalina, please.

MS. GEORGIEVA: Thank you, very much, Gerry. I want to join in welcoming everybody to this press conference to share the conclusions from our Article IV Consultation with the U.S. We had, as you mentioned, a very useful discussion earlier today with Chair Powell, and Secretary Yellen about the current state of the economy and the challenges ahead, as the U.S. emerges from the shadow of the pandemic.

I would like to thank them, and also, thank staff of the Federal Reserve, the Treasury, and other agencies for their time, for their insights over the past couple of weeks. So, let me give you a brief summary of the main messages from the Consultation. First, and that is a very good message to share. The U.S. economy is coming out on a strong footing from the very difficult circumstances of the past year. We expect the economy to grow at 7 percent this year, the fastest annual growth rate since 1984, and continue with very strong momentum into next year. Great news for the U.S. but also, really good news for the world economy.

Our outlook is based on the assumption that the American Jobs Plan and American Families Plan are both legislated later this year. And in a form that is similar to that proposed by the administration. And it is worth noting that these two packages would put in place many of the policies proposed Article IV Consultations over the past several years. So, you can imagine we are very pleased to see the packages moving forward. They will add to near-term demand, raising GDP by a cumulative 5.25 over '22 to '24. And perhaps more importantly, our assessment is that GDP will be 1 percent higher, even after 10 years, thanks to the significant, positive effect on labor force participation and productivity introduced by these two plans.

Rather than just offering a short-term boost to demand and then this demand fade away, the Jobs and Families Plans are expected to produce a lasting improvement in income and living standards for many years to come. And in this regard, it is very welcomed to see the bipartisan agreement to move forward legislation on the physical infrastructure parts of these two packages.

Today's agreement in the House is an important step forward. I am particularly impressed, and so are my colleagues, by the administration's commitment to strengthen social safety nets, and increase the progressivity of the tax system. We know that the burden of the pandemic has been borne disproportionately by the poor, by women, by minority households. Many of the proposed policies including paid family leave, refundable child tax credit, support for childcare, and healthcare, investments in education, higher minimum wage will directly support working mothers. They would help markedly Black and Hispanic families, and boost participation in the labor market.

Second, we are cognizant of the vibrant policy debate about inflation in the U.S. and I am sure this is top of mind for many of you on this call. Certainly, we have seen large consumer price movements in recent months. And we think that those fairly high inflation readings will continue for a few months. I want to emphasize however, that the evidence suggests that this inflation will be transitory, and it is largely a product of relative price movements that are occurring as the economy rebounds from the impact of the pandemic; sometimes, in a rather uneven way.

Demand shoots up where our supply is still being interrupted. We estimate that core inflation, excluding volatile food and energy prices, could get close to 4 percent by the end of this year. After those temporary factors play their role, we expect inflation to be around 2.5 percent by end of 2022. We don’t see overheating as the most likely outcome. At the same time, we cannot ignore the risk that a sustained, fast arise in inflation would pose to the U.S. and the World Economy.

The introduction of the Federal Reserve's new, flexible average inflation targeting framework last August, came to be very timely. It has helped policymakers negotiate the uncertainties created by the pandemic and appropriately provided significant accommodation for the economy as it recovers. It also emphasizes the importance of communication and forward guidance in shaping both the inflation, and inflation expectations. We believe the Fed has been clear in communicating its intentions and we anticipate that such transparent and proactive communications will continue as asset purchases are scaled back, and eventually, as interest rates move upwards.

This matters for sustaining robust growth in the United States, as well as for the impact interest rates in the United States have on the World Economy, especially on countries with high levels of dollar denominated debt.

Now, that takes me to my third point, the U.S.'s leadership in seeking multilateral solutions to the World's most-pressing challenges. I welcome wholeheartedly the U.S. administration's efforts to provide vaccine assistance to a broad range of countries. And its support for the proposed, new SDR's allocation. I also would like to express support for the proposal to establish a global minimum corporate tax which will help reduce incentives to shift taxable income to low-tax jurisdictions.

And let me join Secretary Yellen in welcoming the widespread support among 130 countries for this plan. On trade, our discussions revealed eth administration's commitment to an open, transparent, rules-based international system. We are also supportive of the administration's priority to ensure that trade creates tangible benefits for the American people. We do not think that these two objectives are in conflict. Indeed, actually, we believe that with the ongoing efforts to increase productivity, make U.S. more competitive, a rolling back of recent trade restrictions and tariffs, as well as a level playing field in federal procurement will be important forces to create good, well-paying jobs, and to strengthen the living standards in the U.S.

And finally, I want to welcome the administration's renewed focus on reducing carbon emissions, and to boost investments in climate change mitigation and adaptation. No question, U.S. leadership in this area is critical for he wellbeing of our planet and for our future. Proposed spending on green infrastructure, efforts to remove fossil fuel subsidies, very valuable steps going forward and more will have to follow. In this consultation, we have particularly argued for a greater focus on curbing commissions in the agriculture sector and for pricing carbon best done through a federal carbon tax for the benefits of jobs and growth in the U.S. and for the goal of addressing the global climate challenge. These are my introductory comments and I look very much forward to your questions.

MS. RICE: Thank you very much, Kristalina. So we'll get right to the questions and I will ask you to keep them short. We have a hard stop at 4:30 our time so if we can keep the questions short and direct, we'll take as many as we can. I want to start with, please go ahead.

Questioner: Yes Gerry, thank you. Good afternoon Managing Director Georgieva. I wanted to ask you, you know, with your comments about the agreement today on the global minimum tax, to what extent is there a concern about the small economies that are holdouts on this agreement? Is that a concern for the Fund as far as reaching an agreement that can be universally accepted and that can be effective heading into the G20. Thank you.

MS. GEORGIEVA: The Fund has advocated for many years for minimal corporate tax that is applied globally. Why, because what we have seen is a race to the bottom in tax avoidance. Not only that is damaging for the countries where less tax is collected that otherwise it could have been collected. But also, it is damaging for a more aggressive financing of human and physical capital investments at a time when the world economy is going through a remarkable structural transformation.

We are very encouraged by the fact that we now have 130 countries endorsing this proposal. This is 90 percent of the world economy and I'm confident that work will continue to make sure that the countries that are not yet on board, they can recognize their own interest and they can be a pathway to bring them on board.

Very clearly, this train finally has left the station. I can tell you, I have been sitting in many international meetings when we talk about minimal global corporate tax and I would frankly sometimes just switch off because nothing was happening. Finally, there is traction and this is really great.

We do advocate at the Fund to pay attention to the specificity of developing countries, especially to make sure that whatever is done is simple. So administrations of countries with less capability can apply it and we will continue to add our voice to let's get it done. It is good for everyone.

MR. RICE: Thank you so much, Kristalina. Let me turn to next question?

Questioner: Thanks very much, Gerry. Thank you, it's good to see you, Managing Director. We were wondering, this report mentions concern about the sort of vaccine hesitancy and slowing rates of vaccinations in the United States. How concerned are you about that and how much of a drag do. And speaking of drag, you're also assuming that the Congress will approve these two massive spending packages which seems quite optimistic given the political environment here. What is the risk if that doesn't happen if the packages either don’t go through or are very much smaller as far as your forecast and the outlook for the economy.

MS. GEORGIEVA: Thank you for these two questions. At the IMF, we have been very loud and clear on the importance to focus on vaccinations. Our message is vaccine policy this year, mostly likely also next year is economic policy. And we would like to see the whole world moving faster towards vaccinations. We set the target globally 40 percent vaccinations at least by the end of this year, 60 percent by mid next year.

U.S. has moved very rapidly. What we see now is vaccinations exceeding 50 percent. And I do hope to see continuation of that movement because that is where the world economy can durably find the pathway to exit this crisis rather than leaving patches as fertile ground for mutations to continue to come around.

But let me be very clear, U.S. has made very significant progress. We see that when a country gets to 50 percent and more of vaccinations, that leads to significantly improved economic performance.

To your second question. The U.S. economy is going to grow strongly this year. It is on a path reach, as I mentioned, 7 percent growth. Where the packages are important is to retain that strong momentum, increased productivity, increased labor market participation in the years to come.

As I mentioned in my opening comments, we account for 5 ¼ percentage cumulative increase of GDP between now and 2024. So whilst we see where the packages land, we would be able to define more specifically what would that mean for growth in the United States. But we are encouraged by the fact that there is bipartisan traction on infrastructure and we very much hope to see more attention also to investment in human capital for more productive, more competitive U.S. economy. Once we see the final shape of these packages, we can be concrete in our assessment of what exactly they mean. And let me be clear, size is not everything. What matters more than size is what is the composition of the packages.

MR. RICE: Thank you very much, Kristalina.

Questioner: Hi, thank you so much, Gerry and thank you Managing Director Georgieva. I have a question on trade. The report talks about the removal of obstacles to free trade would help U.S. support U.S. workers and create more jobs. And it also mentioned that the (audio skip) has also committed to prioritizing U.S. producers in public procurement and strengthening the Buy American requirements. I was wondering whether Managing Director Georgieva could share her thoughts on the Buy American policy. Thank you.

MS. GEORGIEVA: What we recognize is that the administration is clear about its commitment to a rules based international trade system. And that they have engaged globally to seek ways in which we can see reforms of the international trade system that are long overdue. And I'm confident that as progress is made globally to resolve some of the outstanding issues that have been holding the full benefit of trade back, that would be also integrated in not only the U.S. but across the world in domestic policies.

We have to recognize that over a long period of time trade has been good for growth, for jobs, for poverty reduction. But these benefits, especially the benefits in terms of jobs and income sometimes have not been accessible to everyone. And on the contrary, there have been communities affected negatively by a rapid movement in globalization and trade.

So what we see in the U.S. policies today that is giving us a kind of optimistic outlook for the future is more attention being paid to those who were left behind. Left behind by trade, left behind by growth. And more insertion of attention to those communities you can see in the plans I describe, that is a fertile ground to then utilize to the fullest the benefits of trade.

When reforms are taken globally and when domestically attention is being paid closely to those who benefit but also to those who may be negative impacted here in the U.S. and everywhere.

MR. RICE: Good, thank you Kristalina.

Questioner: Okay, hi. Can you hear me okay?

MR. RICE: Yes, go ahead.

Questioner: Great, so one of the things in the direct forecast I want to ask you about. Madam Managing Director was that the Congressional Budget Office earlier today, came out with its forecast --and it shows like a really big slowdown in economic growth after 2023, in like a 1 percent range and that's basically due to what they say is a very slow increase in the U.S. labor force. The U.S. workforce just isn't going to be growing very quickly. And how big of a concern do you see this as going forward for the United States? We're essentially running out of workers here.

MS. GEORGIEVA: Great question. My understanding is that in their projections for growth, they're not integrating yet the passing of the two packages I mentioned before. Whereas, we are integrating these packages. And as I said, that leads to a significant boost to growth in about 1 percentage point. GDP is going to be higher on a sustained basis. But this being said, we have to recognize that U.S. is facing a demographic trend that is not favorable for the labor market because of aging population. And this is why we're so strongly supporting two policies that are being now put forward.

One, to make it easier for women to join the labor force and staying in the labor force by focusing more on conditions that make it possible for women to do so. Like, childcare, a patient to early childhood development. And two, a very strong attention to skills, upgrading the labor force that the United States can count on by investing much more in education from early age to college.

I particularly like the attention paid to communities that are falling behind by offering possibly free education, college level education accessible so we can boost of skills. But it is an issue for the United States, this demographic trend and one that absolutely requires attention if U.S. is to be dynamic and to rely on strong growth.

MR. RICE: Thank you, Kristalina. I'm going to make this the last question today. Nigel, heads up in case you want to come in on this one. Nigel, Acting Director of our Western Hemisphere Department.

Questioner: Thank you everybody. My question is what is the relevance to take the U.S-Mexico-Canada Agreement in these outlook about the U.S. economy?

MR. RICE: I'm sorry.

MS. GEORGIEVA: Well, look, I would say that what is good for the United States, it's sure very good for Mexico and Canada. In terms of the spillover impact, those who would benefit the most from very strong growth remarkably focused on growth projections for this year are the countries that are in this agreement. But I'm going to turn to Nigel, who will give you a little bit more and actually, Nigel, if you want to add to any of the previous questions, please do so.

Nigel has been also mission chief for the United States for years and very happy to see many of his recommendations from previous years making it in policies today. Nigel?

MR. CHALK: So for the U.S. I think it's a positive story. I mean, we've saw the largest impact when we look at the spillovers will actually be hitting Mexico and Canada. So, they benefit a great deal from the U.S. demand as being created through these strong policies. And I think what you've also seen is the U.S. is importing a lot more this year, next year and certainly through the medium term. And many of those imports are coming from Canada to Mexico. So, I think this is generally good news for the U.S. trading partners, but it's particularly good news for the ones inside the U.S. Embassy.

MR. RICE: Great.

MS. GEORGIEVA: So, it is a press conference that delivers good news for U.S. and for Mexico and for Canada. And actually for the whole world economy. Anything else? Nigel?


MR. RICE: Thank you, Kristalina. Thank you, Nigel. We're going to leave it there today. Thanks to you all for joining us. You can find all of these documents online. The staff concluding statement and Kristalina's opening remarks. You'll find all that easily available on Thank you for joining us today. Please stay safe and well everyone and we'll see you next time. Bye-bye.

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