Transcript of the United States Article IV Consultation Press Conference
IMF News, May 26, 2023
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- Published: May 26, 2023
Summary of key findings
- U.S. economy has proven resilient, supported by consumer demand initially boosted by a drawdown of pent-up savings and more recently by solid growth in real disposable income.
- IMF baseline growth forecast: 1.2 percent this year (Q4/Q4 basis) with momentum into 2024.
- Unemployment projected to rise slowly to get close to 4.5 percent by end of 2024.
- PCE inflation expected to fall only slowly, ending this year at around four percent, and remaining above the Fed’s medium-termed target throughout 2024.
- Under the IMF’s baseline forecasts, the Federal funds rate is expected to remain at five-and-a-quarter to five-and-a-half percent until late 2024.
Monetary policy and inflation — analysis and recommendations
- Analysis:
- Resilient demand and a strong labor market have contributed to more persistent inflation than anticipated.
- Inflation remains “stubbornly high,” especially PCE inflation; the job of disinflation is “not quite yet done.”
- Recommendations:
- Bringing inflation firmly back to the two percent target will require an extended period of tight monetary policy.
- The Federal Reserve should communicate carefully how it assesses incoming data and provide clear guidance on implications for the expected path of the Federal funds rate.
- IMF emphasizes patience: several months with higher rates may be required even if markets expect rate easing.
Fiscal outlook and public debt — findings and policy options
- Findings:
- Significant fiscal legislation passed in late 2021 and in 2022 will have a lasting impact and reshape the U.S. economy.
- U.S. debt is assessed as sustainable but not necessarily optimal; greater efforts are needed to reduce the fiscal deficit and put public debt on a decisively downward part.
- Policy recommendations (menu of options noted in concluding statement):
- Implement a broad range of measures combining tax revenue increases and addressing structural imbalances in programs such as Social Security and Medicare.
- Frontloading fiscal adjustment would help the Federal Reserve’s efforts to reduce inflation.
- Improve tax administration: finance the Internal Revenue Service to increase collection of due taxes without changing tax law.
- Support global tax initiatives: pursue a global minimum tax to ensure corporations pay appropriate amounts on profits located abroad.
Debt ceiling — risks, observed impacts, and policy suggestions
- Observed market impacts to date:
- Small shifts in niche market segments, including dislocations in the CDs market and the very short-run treasury bill market; these are currently “not of any significance” but signal increased costs in parts of the market.
- Risks if threshold is passed:
- If no resolution is found and the U.S. cannot service its debt, IMF describes this as “uncharted territory” and a “very dangerous move.”
- Two primary dangers: severe loss of confidence in the U.S. Treasury market (the anchor of the global financial system) and a contraction in the U.S. and world economy, producing a shock on top of existing shocks (COVID recovery, the war in Ukraine).
- Policy suggestions:
- Resolve the debt ceiling promptly to avoid unnecessary global anxiety and market disruptions.
- Consider structural changes to avoid recurrent brinksmanship: use appropriations agreed as the basis for borrowing limits or otherwise create automaticity to align borrowing capacity with spending commitments.
Trade, industrial policy, and supply chain concerns
- Findings:
- Maintaining open trade policies has contributed significantly to U.S. growth.
- Recent U.S. legislation (Inflation Reduction Act, CHIPS Act, Build America Buy America provisions) includes measures favoring U.S. or North American production.
- Risks identified:
- Policies that explicitly favor domestic sourcing create a risk of fragmenting global supply chains and triggering retaliatory actions by trading partners.
- Fragmentation would ultimately be detrimental to U.S. growth, productivity, and employment.
Meetings, consultations, and next steps
- IMF engagement:
- IMF team held discussions with Chair Powell and Secretary Yellen.
- Concluding Statement of the Mission released; Staff Report to be published in the coming weeks after IMF Executive Board discussions.
- Tone of engagement:
- Meetings described as “very constructive” with significant convergence on assessments and the need for action on fiscal and monetary fronts.
Transcript of the United States Article IV Consultation press conference, May 26, 2023 — IMF Communications Department