Published: Wed, June 28, 2017
Money | By Armando Alvarado

IMF Pulls Back Expectations of US Economic Growth

IMF Pulls Back Expectations of US Economic Growth

The IMF also said the Federal Reserve should continue gradually raising interest rates, as the central bank has largely achieved its dual mandate of price stability and maximum employment.

The IMF criticised the White House because of its "still evolving policy plans", and the presumable positive effects of Trump's fiscal stimulus have therefore been removed from the Fund's assessments of the U.S. economic prospects.

The IMF forecast that the USA economy will grow this year at an annual rate of 2.1 percent.

Many economists, not just at the International Monetary Fund, but at the Federal Reserve as well, are calling for US economic growth to be roughly 2% over the next few years.

The forecast is also below the 3% rate targeted by the White House.

Any increase in spending could boost growth, but Trump would be forced to get spending hikes past the ultra-conservative wing of the Republicans, who have already balked at measures which would increase the fiscal deficit.

The IMF called for policies to raise the potential growth rate of the United States economy, including through improved education and training programs.

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The IMF's forecast is that annual GDP growth of 2.1 percent this year and 2.1 percent next year would slow to 1.9 percent in 2019 and 1.8 percent in 2020.

The IMF, after a review of USA economic policy, said the Trump administration was unlikely to achieve its goal of annual GDP growth of 3 percent over a sustained period, partly because the labor market is at a level consistent with full employment. The US are now in the third-longest period of economic growth since 1850, given the full employment situation, but this hardly makes things any better, as disposable incomes are low, as is purchasing power, whilst the burden of household indebtedness is stunning. As a result, the fund did not include in its projections the effects of any tax reforms - which the administration has said is a priority but will need congressional approval - or Trump's proposed budget cuts.

The economy's midterm outlook is clouded by imbalances, including rising public debt and a currency that is "moderately" overvalued between 10 per cent to 20 per cent, said the fund.

"The administration is committed to generating sustainable economic growth that will benefit both the American and global economy", the Treasury statement said.

"The consultation revealed differences on a range of policies and left open questions as to whether the administration's proposed policy strategies are best suited to achieve their intended goal", the fund said. "Most critically, relative to historical performance, post-crisis growth has been too low and too unequal".

The IMF said the Trump administration's latest budget plans would place a disproportionate share of spending cuts onto low- and middle-income households.

To put the country's finances back on a healthy path, the International Monetary Fund said, some sort of consumption tax would be necessary, such as a tax on carbon emissions or gasoline.

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