The International Monetary Fund has warned that avoiding recession in the United States will be "increasingly challenging" as it again cut its 2022 U.S. growth forecast to 2.3% from 2.9% in late June as recent data showed weakening consumer spending.
The Fund also cut its 2023 real GDP growth forecast to 1.0% from 1.7% on June 24, when it met with U.S. officials for an annual assessment of U.S. economic policies.
The final report, released on Friday, was revised to reflect downward revisions to U.S. first quarter GDP and weak consumer spending data in May.
But it continued to highlight the challenges of high inflation and the steep Federal Reserve interest rate hikes needed to control prices.
IMF executive directors said in a statement that a broad-based inflation surge was "posting systemic risks to both the United States and the global economy."
"The policy priority must now be to expeditiously slow wage and price growth without precipitating a recession," the IMF said in the Article IV staff report. "This will be a tricky task."
The Fund said Fed monetary policy tightening should help bring down inflation to 1.9% by the fourth quarter of 2023, compared with a forecast of 6.6% for the fourth quarter of 2022.
This will further slow U.S. growth, but the IMF still predicted the United States will avoid recession.
Our latest U.S. economic growth forecast has again been revised down to 2.3% and 1.0% for 2022 and 2023, respectively.
— IMF (@IMFNews) July 12, 2022
Slowed Consumer Spending
IMF Western Hemisphere Department economist Andrew Hodge said in a blog post that Fed rate hikes and less government spending will slow consumer spending growth "to around zero by early next year" easing supply strains.
"Slowing demand will increase unemployment to around 5% by late 2023, which should decrease wages," Hodge said.
IMF executive directors in their policy prescriptions for the U.S. government called for passage of U.S. President Joe Biden's stalled social and climate spending proposals, saying these would foster increased labor force participation, which would ease inflation, while helping to facilitate a transition to a low-carbon economy.
"Directors also recommended rolling back the trade restrictions and tariff increases that were introduced over the past five years," the report said - a reference to tariffs on Chinese goods, steel, aluminium and other products imposed by former president Donald Trump and retained by Biden.