According to the International Monetary Fund (IMF), the US economy will face persistent inflation challenges if the job market remains strong and monetary policy doesn’t stay tight over an extended period of time. On Friday, the US Bureau of Economic Analysis (BEA) disclosed another hotter-than-expected price consumption expenditure (PCE) inflation reading, which then established market expectations for an interest rate hike in June or July. In its Article IV, the IMF mission statement stated, “The strength in demand and labor market outcomes is a double-edged sword, contributing to more persistent inflation.” The IMF also added that core and headline PCE inflation will continue to stay over the Fed’s 2% target during 2023 and 2024.
To deal with the inflation issue, the Fund anticipates a need for the federal funds rate to remain within the range of 5.25% to 5.5% until late 2024. The IMF’s Article IV conducts a recurring health check on the economic and financial performance of its member countries.
IMF Cites Increasing Risks for US Economy
The Fund’s staff advised the Federal Reserve to communicate more clearly about its future policy path as it will assist in aligning financial conditions more closely with the stance of monetary policy. The IMF also points to systemic risks to both the US and the global economy due to the brinkmanship over the federal debt ceiling. “To avoid exacerbating downside risks, the debt ceiling should be immediately raised or suspended by Congress,” the IMF said in a statement. Even with the required adjustment, the US “debt would remain well above pre-pandemic levels over the next decade,” the Fund said.
US Economic Outlook by the IMF
- The IMF predicts a 1.7% growth for US GDP in 2023, which will fall to 1% in 2024.
- Headline inflation is expected to reach 3.8% at the end of 2023 and then decline to 2.6% by the end of 2024. Core inflation is projected to be 4.1% this year and 2.8% in 2024.
- The unemployment rate is anticipated to rise from 3.8% in 2023 to 4.4% in 2024.
- The US public debt-to-GDP ratio is expected to slightly rise from 96.6% in 2023 to 98.4% in 2024.
- The yield on the 10-year Treasury bond is predicted to move down from 4% at the end of this year to 3.7% at the end of 2024.
