Forecast deterioration
In its annual US economic policy assessment, the IMF said it now expects US gross domestic product to grow 2.9% in 2022, short of its last forecast of 3.7% in April.
For 2023, the IMF has cut its growth forecast for the US to 1.7% from 2.3%, and it now expects 0.8% growth in 2024.
Last October, the IMF forecast US growth of 5.2% this year, but since then, new strains of COVID-19 and supply chain disruptions have slowed the recovery, while a war-driven fuel and food price spike Russia against Ukraine, spurred inflation to 40-year highs.
“We recognize that the path to preventing a recession in the US is narrowing,” IMF Managing Director Kristalina Georgieva said at a press conference, noting that the forecast is characterized by a high degree of uncertainty.
According to her, the economy continues to recover from the pandemic, “and serious shocks are shaking the economy due to the Russian invasion of Ukraine and quarantine in China.” “Further negative shocks will inevitably complicate the situation,” she said.
If the shock is strong enough, it could push the United States into a recession, but it is likely to be short and shallow with a moderate rise in unemployment, akin to the US recession in 2001, said Nigel Chalk, IMF deputy director for the Western Hemisphere.
Fighting inflation
Georgieva said price stability is important to protecting US revenue and sustaining growth, but achieving it could be “some pain” for consumers.
She said her talks with US Treasury Secretary Janet Yellen and Fed Chair Jerome Powell “left no doubt about their commitment to lowering inflation.”
US inflation on the Fed’s preferred target is more than three times the US central bank’s target of 2%.
Georgieva said the Fed is responsible for restoring low and stable inflation, and that the fund sees the US central bank’s desire to quickly raise its overnight benchmark rate to 3.5-4% as “the right policy to bring down inflation.” The current Fed discount rate ranges from 1.50% to 1.75%.
“We believe that this policy course should lead to a preliminary tightening of financial conditions, which will quickly return inflation to the target level. We also support the Fed’s decision to reduce its balance sheet,” she said.
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