The IMF released its latest review of the US economy and it paints a picture of faltering growth and inflation slowly returning to target.
- PCE inflation 3.8% in 2023 and 2.6% in 2024
- Unemployment rate 3.8% in 2023 and 4.4% in 2024
- Fed funds at the end of 2024 4.9%
- Full report
The IMF said the US economy in 2022 has shown resilience to shifts in fiscal and monetary policy, with consumer demand supported by the use of pent-up savings and steady growth in real disposable income. Notably, labor force participation has increased, unemployment rates have fallen to historic lows, and real wages have outpaced inflation since mid-2022. Growth of 1.2% is forecast for 2024, despite an expected modest increase in unemployment to around 4.5%.
A significant reduction in poverty has been observed in 2021 due to wage increases for low-income workers, job growth and pandemic-related government assistance. However, those gains were largely reversed in 2022 as pandemic benefits expired and real wage growth slowed for low-income workers. Strong demand and labor market performance have contributed to persistent inflation, with goods inflation stabilizing and house price growth expected to decline. Despite planned cuts in 2023, inflation will remain above the Federal Reserve’s 2% target through 2024. To rein in inflation, a prolonged tight monetary policy is needed, with a proposed federal funds rate of 5.25-5.5% through the end of 2024. Amid economic uncertainties, the IMF said it was essential for the Federal Reserve to provide transparent policy rate assessments and hold interest rates steady high over an extended period.