Revision of projections was motivated by the cooling of consumption; Fund warns of recession risk
The IMF (International Monetary Fund) said on Tuesday (12.Jul.2022) that it will be “increasingly challenging” avoid a recession in the United States. The Fund again lowered the country’s 2022 growth forecast to 2.3%. Less than 1 month ago, it was 2.9%.
The previous report was revised to reflect low consumption in May. read the new projections until 2027 for some of the main indices:
In communiquéthe IMF cited that “the US economy recovered quickly from the pandemic, but the recovery in demand stressed supply chains and caused inflation to rise sharply”.
Read the progression of the price hike by category:
He also pointed out that the interest rate hikes promoted by the US Central Bank are necessary to control prices, despite holding back the growth of the economy.
On the 15th of June, the EDF (Federal Reserve, the Central Bank) raised interest rates by 0.75 percentage point. The range went from 0.75% to 1% per year to 1.5% to 1.75% per year.
Added to the end of the covid economic relief programs, the interest rate hikes may contribute to the PCE (Price Index for Personal Consumption Expenses) reaching the Central Bank’s target, which is 2% at the end. 2023. However, there are risks: “If inflation turns out to be more persistent than expected, the Fed will need to tighten more, which will slow the economy further.”, warned the Fund.
IMF executives assess that a broad rise in inflation represents “systemic risks” not just for the US, but for the global economy. “The political priority now must be to quickly slow down wage and price growth without precipitating a recession. This will be a complicated task.”
According to the IMF forecast, despite the difficulties, the North American country will avoid a recession.
IMF leaders recommended that the US government invest in “strengthening the social safety net and changes in tax, spending and immigration policies that promote workforce participation, investment and innovation”. He also directed US officials to work with their trading partners to strengthen the multilateral trading system.
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