IMF Examines the Outlook for US Growth, Employment and Risks
Nigel Chalk, Deputy Director, Mission Chief to the U.S, IMF
(Washingon, D.C., Tuesday, June 17, 2014) – The 2014 U.S. Article IV highlighted five broad themes to both strengthen the recovery and improve the long-term outlook: raising productivity growth and labor participation, confronting poverty, keeping public debt on a sustained downward path, managing the exit from zero policy rates, and securing a safer financial system. To achieve these goals and fortify the country’s economic future the policy focus should be to undertake more proactive labor market policies that lower long-term unemployment and raise participation; increase the minimum wage while strengthening the Earned Income Tax Credit; invest in infrastructure; improve the tax structure and raise revenues; fundamentally reform social security; and lower the growth of health care costs.
Report findings include:
- Near-term growth and jobs. In the early part of this year, as a harsh winter conspired with other factors (including inventory drawdown, a still-struggling housing market, and slower external demand), momentum faded in the U.S economy;
- Longer-run growth. Potential growth is forecast to average around 2 percent for the next several years, below both historic averages and the outlook assessed at the last Article IV consultation;
- Poverty. The latest data showed almost 50 million Americans living in poverty (as measured by the Census Bureau’s supplemental poverty measure) and the official poverty rate has been stuck above 15 percent despite the ongoing recovery;
- The macroeconomic policy mix. Given the substantial economic slack in the economy, there is a strong case to provide continued policy support. Ideally, steps should be taken to approve and implement a credible medium-term fiscal consolidation plan so as to provide the flexibility for more near-term fiscal support to the economy;
- Monetary policy stance. The Fed currently has to contend with multiple areas of uncertainty: the degree of slack remaining in U.S. labor markets; the extent to which this slack will translate into future wage and price inflation; and the transmission to the real economy of a future move upwards in policy rates;
- Federal Reserve communication. The Fed has made important and substantive efforts to increase transparency and has adopted an adaptable approach to communication; and
- Financial stability risks. Over the past few years, much has been done to reduce financial system risks: the banks are stronger, corporate balance sheets are healthy, overall leverage is contained, and the regulatory framework has been greatly improved.
In conclusion, the agenda ahead is long and challenging and will take many years to accomplish. Concerted progress will serve to raise long-run growth prospects, lessen poverty, put fiscal finances on a sustainable footing, and reduce financial stability risks. All of which will be advantageous for the U.S. and for the world economy.
To view the full report, visit: IMF.org.