## The US Economy’s Inflation Challenge _IMF News, July 12, 2022_ ## Source details **Canonical URL:** [The US Economy’s Inflation Challenge](https://www.imf.org/en/news/articles/2022/07/11/cf-us-economy-inflation-challenge) ## Other formats - [Markdown version](/en/news/articles/2022/07/11/cf-us-economy-inflation-challenge/index.md) - [Structured JSON version](/en/news/articles/2022/07/11/cf-us-economy-inflation-challenge/index.json) - [Bundle manifest](/en/news/articles/2022/07/11/cf-us-economy-inflation-challenge/bundle-manifest.json) ## Bibliographic details - Authors: Andrew Hodge IMF Western Hemisphere Department July - Published: July 12, 2022 --- ### Overview - The US economy has recovered quickly from the pandemic, but the bounce back in demand has stressed supply chains and caused inflation to rise sharply. - Core Personal Consumption Expenditure (PCE) inflation is expected to be brought down to the Federal Reserve’s 2 percent medium-term target by late 2023 under the baseline scenario. - Most workers’ wages have failed to keep up with inflation, eroding the purchasing power of households and causing significant hardship. - Price increases have been broad-based, including gasoline, food, housing, and transportation, and could become long lasting if unchecked. - The IMF concludes that the Fed should act quickly and assertively to tackle inflation and restore price stability. ### Policy action - The Fed increased its policy rates by 1.5 percent so far this year and is likely to increase them by another 2 or 2.5 percent in the coming months. - The Fed is also unwinding its holdings of Treasury bonds and mortgage-backed securities, increasing the cost of borrowing. - Example: the average fixed rate on a 30-year mortgage has risen from 3 percent to between 5 and 6 percent since the start of this year. - Pandemic-era government support programs are expiring and the government is reining in spending. - Expected effects: - Growth in consumer spending will slow to around zero by early next year, easing strain on supply chains. - Higher mortgage rates will reduce housing prices. - Slowing demand will increase unemployment to around 5 percent by the end of 2023, which should decrease wages. - Core PCE inflation is expected to fall back toward 2 percent by late 2023. - Economic activity is expected to slow from 3.5 percent in the first quarter of this year to 0.6 percent by end‑2023. ### Risks ahead - Global factors that could impact US developments include the Russian war with Ukraine, the ongoing pandemic, and possible recurrence of shutdowns in China. - If inflation is more persistent than expected, inflation expectations could move up and feed into wages and prices. - In that scenario, the Fed would need to tighten more aggressively—raising interest rates and keeping them higher for longer—which would lower growth further and lead to higher unemployment. ### An inclusive recovery (policy recommendations) - While tighter Fed policies may impose short-term costs on households and firms, restoring price stability is necessary to lay the foundations for strong growth and low unemployment. - The US government can support medium- to long-term growth through fiscal measures that expand the labor force, improve productivity, and incentivize innovation and investment, including: - Increased government support for paid family leave, childcare, pre-school, and access to a college education. - Tax credits that help women, minorities, and lower-income workers join the workforce. - Immigration reform targeted toward expanding the labor force and strengthening skills. _Andrew Hodge, IMF Western Hemisphere Department — July 12, 2022_ --- ## References - [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus) - [Chart of the Week](https://www.imf.org/en/Blogs/chart-of-the-week) - [PRESS CENTER](http://presscenter.imf.org/) - [https://www.imf.org/en/publications/weo](https://www.imf.org/en/publications/weo) - [Global Economy in Crosscurrents of War and Technology](https://www.imf.org/en/publications/weo/issues/2026/07/08/world-economic-outlook-update-july-2026) - [https://www.imf.org/en/publications/gfsr](https://www.imf.org/en/publications/gfsr) - [Global Financial Markets Confront the War in the Middle East and Amplification Risks](https://www.imf.org/en/publications/gfsr/issues/2026/04/14/global-financial-stability-report-april-2026) - [https://www.imf.org/en/publications/fm](https://www.imf.org/en/publications/fm) - [Fiscal Policy under Pressure: High Debt, Rising Risks](https://www.imf.org/en/publications/fm/issues/2026/04/15/fiscal-monitor-april-2026) - [https://www.imf.org/en/publications/reo](https://www.imf.org/en/publications/reo) - [Asia and Pacific](https://www.imf.org/en/publications/reo/apac) - [Europe](https://www.imf.org/en/publications/reo/eu) - [Middle East and Central Asia](https://www.imf.org/en/publications/reo/meca) - [Sub-Saharan Africa](https://www.imf.org/en/publications/reo/ssa) - [Western Hemisphere](https://www.imf.org/en/publications/reo/wh) - [https://www.imf.org/en/publications/areb](https://www.imf.org/en/publications/areb) - [Getting to Growth in an Age of Uncertainty](https://www.imf.org/en/publications/areb/issues/2025/09/24/annual-report-2025) - [More Publications](https://www.imf.org/en/publications) - [Read the Article IV Consultation Report](https://www.imf.org/en/Publications/CR/Issues/2022/07/12/United-States-2022-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-520659) - [Read the Managing Director's Opening Remarks](https://www.imf.org/en/News/Articles/2022/06/24/sp062422-us-a4-opening-remarks) - [United States and the IMF](https://www.imf.org/en/Countries/USA) - [annual review of the US economy](https://www.imf.org/en/News/Articles/2022/06/24/mcs062422-united-states-of-america-concluding-statement-of-the-2022-article-iv-mission) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2022/07/11/cf-us-economy-inflation-challenge_