Transcript of Press Conference on the Conclusion of the 2019 Article IV Consultation with the United States
IMF News, June 6, 2019
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- Published: June 6, 2019
Economic performance and outlook
- The U.S. economy is described as approaching "the longest expansion in recorded history."
- Growth projections:
- "the economy will grow this year at about 2.6% percent"
- "next year at around 2 percent"
- This "represents an increase from our initial growth forecast by point 3 percent"
- Labor market:
- "unemployment is at levels not seen since the late 60s"
- "wages and households’ incomes are rising"
- Inflation: "inflation pressures in the U.S. remains very subdued"
Social indicators and inclusiveness
- Noted adverse trends:
- "Average life expectancy has trended downwards in recent years"
- "Income and wealth polarization have increased"
- "social mobility has steadily eroded"
- "education and health outcomes are suboptimal"
- "while the poverty rate is falling it remains higher than in any other advanced economies"
- Recommendations to promote inclusive and sustainable growth:
- "Instituting paid family leave"
- "expanding the very effective Earned Income Tax Credit"
- "helping working family with child and dependent care"
- Continued multi-level government efforts to "tackle the current opioid crisis"
Markets and financial risks
- Financial market conditions "have improved markedly" in the first months of the year, supporting near-term growth by reducing financing costs.
- Key risk: "the risk of an abrupt reversal of financial market conditions" that could "represent a material downside risks in the U.S."
- Transmission mechanism of concern:
- "a sudden tightening of financial conditions could interact adversely with the high level of private, public, corporate, households, and sovereign debt and could create a feedback loop that could also weigh on real activity and job creation"
- Such developments would have international "spillover effects beyond the borders of this country"
Debt and fiscal policy
- Public debt assessment: "the U.S. public debt is on an unsustainable path"
- Fiscal adjustment needed to "lower the fiscal deficit and to put public debt on a gradual downward path over the medium term"
- Recommended elements of a credible package:
- "steps to address the expected increases in entitlement spending on health and on social security"
- "raising indirect taxation"
- "instituting, as we have said many times before, a federal carbon tax"
- On fiscal risks from proposed policy expansions: attention to trade-offs between addressing social needs and restoring fiscal sustainability; options noted include entitlement reform, revenue measures, and efficiency in healthcare spending.
Monetary policy
- Federal Reserve stance: earlier in the year the Fed "was pausing its process of raising interest rates" — IMF "fully agree[s] with that approach"
- Guidance: "it will be important for the Fed to continue to be exclusively data dependent and to continue to communicate well"
Trade, tariffs, and spillovers
- Trade framework: IMF emphasizes the need for "a more open, more stable, more transparent, more predictable, and rules based international trade system"
- Position on trade conflict: "nobody wins a trade war and everybody suffers"
- Tariffs and modeling:
- Difficulties quantifying technology "decoupling" vs. tariffs; work on technology impacts is "something we're looking at and working on"
- Existing modeling and estimates referenced from the April 2019 WEO (Chapter 4 and related boxes)
- Example estimate cited: "a 25 percent tariff across the board on Chinese goods" reduces U.S. GDP "by around a point three percent of the GDP over a longer term" (and "a little bit less in the shorter term")
- Specifics on recent tariff measures:
- Tariffs already enacted (e.g., on China, aluminum) were "built into our forecasts" while proposed tariffs (e.g., on Mexico) were not embedded until implemented
- Effects observed so far: "a modest headwind to the U.S. economy particularly the tariffs they've been placed on China" with larger sectoral and state effects in integrated sectors (e.g., automobiles, transportation, agriculture)
- On passthrough: "We have not yet seen a large impact of the tariffs on consumer prices although we do see their effects on import prices"; passthrough could increase with time or higher tariffs
- Hypothetical escalation: implementation of "US$300 billion of products for Chinese imports" was discussed as likely to be a negative/ambiguous impact; modeling for broad 25 percent tariffs provides a reference point
Transmission to third countries and the hemisphere
- Trade dispute spillovers occur through multiple channels:
- Direct trade channels and trade diversion (which can be positive for some exporters, e.g., agricultural producers)
- Uncertainty effects that reduce investment and tighten market financing, producing broadly negative effects once market and uncertainty channels are accounted for
- For Mexico: "effects of tariffs on Mexico are certainly larger as a share of GDP from Mexico than they are for the United States" with pronounced impacts in sectors with cross-border integration
- For Argentina and other third countries: possible short-lived gains from trade diversion but net negative effects once uncertainty and market channels operate
Recession risk and scenarios
- Baseline: "we don't see recession as a likelihood in our baseline in the U.S."
- Expected path: "a gradual slowing of the economy to a point where the economy slows down a little bit below the potential growth rate"
- Principal near-term risk channel: heightened trade uncertainty → increased risk aversion → tightening of financial conditions → slowdown in activity
- Higher-than-assumed financial market responses would amplify macro effects beyond baseline model estimates
Structural reforms and long-term growth
- Areas identified to raise labor productivity and long-run growth:
- Investments in "health and education" and improving access to both
- Raising college retention rates and strengthening K through 12 science and technology education
- "immigration reform" — particularly skill-based immigration to boost productivity and labor supply
- Addressing "the rise in corporate market power" to preserve contestability, investment, and innovation (evidence cited from April WEO and other IMF work)
- Infrastructure investment to reduce commute times and improve living standards, with funding options including a "federal gasoline tax" or other revenue measures
- Fiscal sustainability: placing the fiscal trajectory on sound footing will reduce risk premia and support long-term growth
Transcript of Press Conference on the Conclusion of the 2019 Article IV Consultation with the United States (June 6, 2019).