## Transcript of Press Conference on the Conclusion of the 2019 Article IV Consultation with the United States _IMF News, June 6, 2019_ ## Source details **Canonical URL:** [Transcript of Press Conference on the Conclusion of the 2019 Article IV Consultation with the United States](https://www.imf.org/en/news/articles/2019/06/07/tr060619-united-states-transcript-of-press-conference-conclusion-2019-article-iv-consultation) ## Other formats - [Markdown version](/en/news/articles/2019/06/07/tr060619-united-states-transcript-of-press-conference-conclusion-2019-article-iv-consultation/index.md) - [Structured JSON version](/en/news/articles/2019/06/07/tr060619-united-states-transcript-of-press-conference-conclusion-2019-article-iv-consultation/index.json) - [Bundle manifest](/en/news/articles/2019/06/07/tr060619-united-states-transcript-of-press-conference-conclusion-2019-article-iv-consultation/bundle-manifest.json) ## Bibliographic details - 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).* --- ## References - [Christine Lagarde](https://www.imf.org/en/About/senior-officials/Bios/christine-lagarde) - [People's Republic of China and the IMF](http://www.imf.org/external/country/CHN/index.htm) - [Mexico and the IMF](http://www.imf.org/external/country/MEX/index.htm) - [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) - [PRESS CENTER](http://presscenter.imf.org/) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2019/06/07/tr060619-united-states-transcript-of-press-conference-conclusion-2019-article-iv-consultation_