IMF slashes U.S. growth forecast, sees ‘narrowing path’ to avoid recession

People drive outside the Lincoln Tunnel at the start of Memorial Day weekend amid rising gas prices and record inflation, in Newport, New Jersey, U.S. May 27, 2022. REUTERS/Eduardo Munoz

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WASHINGTON, June 24 (Reuters) – The International Monetary Fund on Friday lowered its forecast for U.S. economic growth as aggressive Federal Reserve interest rate hikes dampened demand, but predicted that states States would “narrowly” avoid a recession.

In an annual assessment of US economic policies, the IMF said it now expects US gross domestic product to grow 2.9% in 2022, down from its last forecast of 3.7% in April. .

For 2023, the IMF has cut its US growth forecast to 1.7% from 2.3% and now expects growth to bottom out at 0.8% in 2024.

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Last October, the IMF predicted US growth of 5.2% this year, but since then new strains of COVID-19 and lingering supply chain disruptions have slowed the recovery, while a sharp surge Fuel and food prices caused by Russia’s war in Ukraine have further fueled inflation to 40-year highs.

“We are aware that there is an increasingly narrow path to avoid a recession in the United States,” IMF Managing Director Kristalina Georgieva told a press conference, noting that the outlook was bleak. very uncertain.

“The economy continues to recover from the pandemic and there are significant shocks to the economy from the Russian invasion of Ukraine and lockdowns in China,” she said. “Further negative shocks would inevitably make the situation more difficult.”

If large enough, a shock could plunge the United States into a recession, but it would likely be short and shallow with a slight increase in unemployment, similar to the 2001 U.S. recession, said the IMF’s deputy director for Western Hemisphere, Nigel Chalk. Strong U.S. savings would help support demand, he added. Read more

CUTTING INFLATION “PAIN”

Georgieva said price stability was important to protect U.S. incomes and support growth, but consumers may find it “difficult” to achieve it. Read more

She said her talks with US Treasury Secretary Janet Yellen and Fed Chairman Jerome Powell “left no doubt about their commitment to bringing inflation down”.

US inflation on the Fed’s preferred measure is more than three times higher than the US central bank’s 2% target.

Georgieva said the responsibility for restoring low and stable inflation rests with the Fed and the fund considers the U.S. central bank’s desire to quickly cut its benchmark overnight interest rate to the 3.5% level. at 4% as “the right policy to lower inflation.” The current Fed policy rate ranges from 1.50% to 1.75%.

“We believe this policy trajectory should create an initial tightening of financial conditions that will quickly bring inflation back to target. We also support the Fed’s decision to shrink its balance sheet,” she said.

While Congress’ failure to pass Biden’s climate and spending proposals was a “missed opportunity,” Georgieva signaled that the IMF would back a scaled-down version.

“We believe the administration should continue to advocate for tax, spending and immigration policy changes that would help create jobs, increase supply and support the poor,” he said. she declared.

Georgieva also said the IMF sees clear benefits in reducing U.S. import tariffs imposed over the past five years, which include punitive duties on Chinese imports and global tariffs on steel, aluminum, washing machines and solar panels.

U.S. Treasury spokesman Michael Kikukawa said the IMF statement shows the U.S. economy was facing global challenges “from a position of strength” due to the Biden administration’s economic policies.

Treasury also said Yellen, when meeting with Georgieva, reiterated the importance for the IMF to conduct “frank and thorough assessments” of IMF member economies.

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Reporting by David Lawder and Andrea Shalal; Editing by Paul Simao and Richard Chang

Our standards: The Thomson Reuters Trust Principles.

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