Volkswacht Bodensee - IMF slightly downgrades US economic forecast for 2024

The US economy "has been remarkably strong," IMF managing director Kristalina Georgieva told reporters during a press conference at the Fund's headquarters in Washington on Thursday.

She added that the United States is the only economy out of the G20 group of nations whose economic output now exceeds its pre-pandemic level, pointing to stronger-than-expected employment growth, and a disinflation process that has been "less costly than most feared."

The world's largest economy is now expected to grow 2.6 percent this year, down 0.1 percentage point from the IMF's previous forecast in April.

"The US economy has proven itself to be robust, dynamic, and adaptable to changing global conditions," the IMF said in a statement accompanying its updated economic forecasts, adding that activity and employment "continue to exceed expectations."

"Nonetheless, the fiscal deficit is too large, creating a sustained upward trajectory for the public debt-GDP ratio," it added, while warning about the impact of the "ongoing expansion of trade restrictions."

The IMF said it expects the Federal Reserve to hit its inflation target by mid-2025, slightly ahead of the median forecast from the US central bank's rate-setting committee.

The Fed has responded to a post-pandemic inflationary surge in 2022 by hiking its key lending rate to its highest level in 23 years, and then holding it there.

While inflation has fallen sharply, it remains stuck slightly above the Fed's long-term target of two percent, and policymakers have indicated they are happy to hold rates high until they see further signs of disinflation.

The IMF's inflation forecast "is a bit more optimistic" than the Fed's, Georgieva told reporters.

She said the trajectory for inflation in the United States since its peak in 2022 had given the IMF the "confidence" that it was on the right track.

In its forecasts published Thursday, the IMF said "the expected decline in shelter inflation may materialize more slowly, or reverse more quickly than expected."

"Also, even with the sizable expansion in labor supply, nominal wage growth remains relatively high which could forestall the expected softening of non-shelter services inflation," it added.

During talks ahead of the publication of these forecasts, Georgieva and US Treasury secretary Janet Yellen "discussed the remarkable performance of the US economy over the past few years, including economic growth and employment that continue to exceed expectations," the US Treasury Department said in a statement.

K.Hofmann--VB