## Transcript of a Press Conference on the Concluding Statement of the United States IV Consultation

_IMF News, June 14, 2013_

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**Canonical URL:** [Transcript of a Press Conference on the Concluding Statement of the United States IV Consultation](https://www.imf.org/en/news/articles/2015/09/28/04/54/tr061413)

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## Bibliographic details
- Published: June 14, 2013

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### Outlook
- Recovery in the United States "is gaining ground and becoming more durable."
- Housing market, household balance sheets, and labor markets "are generally doing better."
- Private sector is leading; "easy financial conditions have helped."
- Key headline projections and figures:
  - Unemployment is "still too high at about 7.6 percent."
  - "We expect growth this year to be at 1.9 percent."
  - "The deficit will likely decline by 2.5 percent."
  - That deficit decline "will, in our view, shave 1.25 to 1.75 percentage points of growth."
  - "Next year, the focus for growth should be better, picking up to 2.7 percent."
- Conditions that would support 2.7 percent growth next year:
  - "Fiscal adjustment becoming more moderate"
  - "The housing market continuing to strengthen"
  - "Continued support for monetary policy"

### Risks (external and domestic)
- External risk:
  - "Possible renewed financial stress on the markets, notably coming from the Euro area, which would affect the United States."
- Domestic risks (emphasized as "closer to home"):
  - "Too strong deficit decline" — sequester and other deficit reduction measures could have a "stronger-than-expected impact."
  - "Doing too little further down the road after having done too much this year."
- Additional macro risks noted:
  - Sequencing risks from "the phasing out from the extraordinary degree of monetary policy stimulus."
  - Challenges for financial stability during the unwinding of monetary accommodation.
  - Market volatility related to expectations about monetary policy (including recent volatility in emerging markets and U.S. Treasury rates).

### Fiscal policy assessment and recommendations
- Short-term vs. medium-term framing: "slow down, but hurry up" / "hasten slowly."
- Short-term recommendation:
  - "Slow the adjustment this year."
  - Example: "repeal the sequester and adopt a more balanced and gradual pace of fiscal consolidation."
  - Replace sequester cuts with "a better balanced program with a mix of back-loaded entitlement savings and new revenues."
- Immediate operational advice:
  - "Expeditiously raise the debt ceiling so as not to complicate further the situation and avoid yet another lengthy and unnecessarily debate about the debt ceiling."
- Medium-term recommendation ("hurry up" on a roadmap):
  - Put in place "a medium term road map to restore long-run fiscal sustainability."
  - Rationale: projected "significant increase of interest outlays" and likely "significant increases in health care costs" over the next five years.
  - Quantified medium-term risks:
    - "Additional interest outlays would be in the range of 2 percent of GDP"
    - "Additional health care costs would likely be in the range of 2 percent of GDP"
  - Preferred design: "a comprehensive and back loaded plan with both lower growth in entitlement spending and higher revenue."
- Specific entitlement policy options discussed:
  - Pension reforms: indexing changes (e.g., "chained CPI") and raising eligibility/retirement age for Social Security benefits.
  - Health care: "phasing out some of the tax benefits that accrue to the high end health care plans" and other measures to "help contain the rate of growth of health care costs."

### Monetary policy, exit sequencing, and communication
- Assessment of current stance:
  - No need to rush exit from monetary accommodation given "the still large output gap," "subdued growth," and "well-anchored inflation expectations."
- Policy tools and implementation:
  - "The Fed has a large range of tools that it can use," including "effective communication" and "careful timing."
  - Communication is highlighted repeatedly as a critical tool to "reduce uncertainty" and manage expectations domestically and for spillovers abroad.
- Forecast assumptions on asset purchases:
  - Assumption used for forecasts: "$85 billion in bond purchase a month until the end of this year."
  - For 2014: "a slight, very slight decline. No tightening, very slight decline." — described as "very gradual phasing out later in 2014, depending on circumstances."
- Caution on market reactions:
  - Recent market volatility is described as a return to different circumstances after a period of low volatility; unwinding will be "with us, you know, over months and months and months."

### Financial sector reform recommendations
- Continue and complete reforms in several areas, including:
  - "Regulation of money market funds, as recently proposed by the SEC"
  - "Basel III total implementation"
  - "The Volcker rules"
- Rationale:
  - These reforms "are particularly significant, given the global major role played by the U.S. financial market."
  - Reforms "should be well coordinated with the global financial reform agenda that is underway."

### Housing market policy options
- Existing programs highlighted:
  - HAMP (Home Affordable Modification Program) — "recently extended" and "helping underwater borrowers get more affordable mortgages."
  - HARP — "eased access to refinancing for households that have been current on their mortgages" but constrained to mortgages guaranteed by GSEs (Fannie Mae and Freddie Mac).
- Policy options to deepen recovery:
  - Extend refinancing programs beyond mortgages guaranteed by Fannie Mae and Freddie Mac — requires legislative action; described as "something that the administration has proposed."
  - "Expeditiously completing all the regulatory reforms that have to do with the housing finance sector" to bring product capital back in and provide certainty to financial institutions.

### Forecast revisions and assumptions
- April forecast comparison:
  - April forecast for 2014 was "3 percent"; the updated forecast is "2.7 percent."
  - Explanation: the downgrade reflects that the current forecast "does not assume that sequestration will be phased out" (sequestration assumed to continue).
- Clarification of QE/assumption link: forecasts use the assumption of "85 billion monthly purchases until the end of this year" with "very gradual phasing out later in 2014" contingent on labor market and inflation developments.

### Other topics addressed briefly
- Troika/Euro area cooperation:
  - Troika relationship described as "very unusual and exceptional" but "a solid cooperation, constant cooperation."
  - Regular contact noted between IMF Managing Director and European counterparts (example: "not a week that goes by without Olli Rehn and myself speaking on the telephone").
- Energy and geopolitical risk:
  - Rising tensions in the Middle East raise the risk of higher oil prices, which are a macro risk.
  - Assessment for the U.S.: "the U.S. economy is better positioned, I would say, almost by the month, given its energy policy mix and the reliability of the shale gas reserve" — concluding that the U.S. is "probably better protected against that risk than it was, than many other economies."
- Institutional reform comment:
  - Managing Director noted President Putin's interest in IMF reform consistent with "the 2010 governance reform calls for."

*Transcript of a Press Conference on the Concluding Statement of the United States IV Consultation — June 14, 2013*

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## References

- [United States and the IMF](http://www.imf.org/external/country/USA/index.htm)
- [IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)
- [Transcripts](https://www.imf.org/en/news/searchnews)
- [United States of America: Concluding Statement of the 2013 Article IV Mission](https://www.imf.org/external/np/ms/2013/061413.htm)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Webcast](https://www.imf.org/external/mmedia/view.aspx?vid=2479953024001)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/54/tr061413_