Press Conference: Update on the U.S. Economy, June 2024

IMF News, June 28, 2024

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The Managing Director distilled four key points from the 2024 United States Article IV Consultation.
- U.S. economic performance: described as "remarkably strong." Activity and employment have exceeded expectations and the disinflation process has proven "less costly than most feared."
- Growth outlook: "We expect growth to be a healthy 2 percent on a fourth-quarter over fourth-quarter basis and sustain a similar pace over the medium-term."
- Inflation outlook: "Inflation has declined in response to the Federal Reserve's actions and we see inflation on a path towards the 2 percent target." Expectation that "core PC inflation to end this year around 2.5 percent and be back to target by mid 2025."
- Policy and risk management: recognition of "important upside risks" to the inflation path; agreement that "the Fed should keep policy rates at current level until at least late 2024." The policy rate "should be lowered only after there is a clear evidence that inflation is sustainably returning to the 2 percent target."

Factors supporting strong U.S. performance:
- "Important gains in labor supply including of women."
- "Strong productivity gains."
- Relative advantages cited vs. peers: "innovation driven economy and productivity," "energy security," and "ability to tap into labor."
Capital flows and investor preference:
- Pre-pandemic share of "money on the move" to the United States: "18 percent."
- Current share cited: "33 percent."

Fiscal challenge: "Significant exogenous shocks over the last years. They have pushed further already high debt and deficit levels."
Timing and posture: when the economy is strong, "it is the time to arrest and reverse this trend."
Recommended policy package themes to put "public debt to GDP on a decisive downward path":
- "Raising tax revenues."
- "Addressing structural imbalances in the entitlement programs."
- "Looking for savings in non-entitle -- entitlement spending."
Implementation horizon: proposed reductions are framed over "a fairly long period of time ... basically within this decade."
Political realism: IMF acknowledges such measures are "politically difficult" and emphasizes the need to "bring people on board" through outreach and justification.

IMF-Fed comparison:
- IMF is "a bit more optimistic" than the Fed on the timing for inflation returning to target (IMF sees return by "mid 2025"; Fed's median dot from its June forecast indicates "2026").
- IMF judges the difference "is not a significant difference."
Recommended Fed approach:
- Continue caution and be data-guided; keep policy rates at current level "until at least late 2024."
- IMF still sees "the potential for one rate cut within 2024" conditional on confirming data; "potentially further cuts in 2025."
Global spillovers:
- Caution by the Fed is "important for the rest of the world" because high U.S. interest rates increase dollar financing costs and can raise debt servicing burdens for dollar borrowers and cause currency depreciation in other countries.

IMF stance on tariffs and trade measures:
- Recognizes U.S. concerns: "unfair practices, national security concerns, supply chain resilience" have led to tariffs and measures to protect national content.
- IMF view: such concerns "maybe better addressed through more dialogue with trading partners" and through reinvigorating "the rules-based international trading system."
- Warning: reliance on tariffs is "likely to lead to retaliation from trading partners" and be "more costly for the U.S. and the global economy."
Contextual drivers of trade policy shifts:
- Decades of globalization produced positive outcomes but "negative consequences for some communities," contributing to political pushback.
- Recent shocks—Pandemic and "Russia's war in Ukraine"—and increased geopolitical tensions have elevated supply-chain security and national-security considerations.

Debt sustainability view:
- IMF judges U.S. debt "sustainable" given current performance, productivity, and investor demand.
- IMF notes "we are far away from any rollover risk in the U.S., but at the same time it's something that you never want to test."
Practical admonition: "When the sun is shining, fix the roof" — use strong economic conditions to strengthen fiscal buffers.

IMF role: to "objectively assess the status of any economy" and present policy paths that "would serve the economy and its people well," without speculating about political developments.
Messaging: emphasize the need to communicate and build public support for measures that create fiscal space and address distributional impacts of globalization.

Transcript of IMF Press Conference: Update on the U.S. Economy, June 28, 2024.