Via IMF (Den Internationale Valutafond)

IMF Executive Board Concludes 2020 Article IV Consultation with the United States







August 10, 2020















Washington, DC: The Executive Board of the
International Monetary Fund (IMF) concluded the Article IV consultation

[1]

with the United States.

The economic outlook has shifted dramatically with the rapid spread of
COVID-19. 135,000 Americans have tragically lost their lives and many
more have become seriously ill. The sudden-stop in activity, arising from
the shutdown, has caused an abrupt contraction in activity and a surge in
unemployment. The unemployment rate now stands at 11.1 percent and 15
million Americans have lost their job over the past four months. These job
losses have disproportionately affected lower income households, those
without a college education, women, African Americans and Hispanics, many
of whom have insufficient buffers to cope with the unprecedented size of
the economic shock. The economy is expected to contract by around 6½
percent in 2020 and expand by around 4 percent in 2021.

There has been a strong and proactive response to this unprecedented shock
to the economy. Congress moved swiftly to provide substantial assistance to
households, businesses and state and local governments. These important
fiscal efforts have, however, come at a substantial cost. The federal
government primary deficit is expected to rise from around 3 percent of GDP
in FY2019 to 16 percent of GDP in FY2020 and the federal debt is expected
to approach 100 percent of GDP by end-2020. State and local government
deficits are also expected to more-than-double in size this year.

The Federal Reserve also reacted quickly as the scale of the burgeoning
pandemic became clear. In an unscheduled meeting on March 15, the Federal
Open Market Committee (FOMC) lowered the federal funds target range to 0 to
¼ percent and indicated it would maintain rates at this level until it is
confident that the economy has weathered recent events and is on track to
achieve the Fed’s maximum employment and price stability goals. There was a
significant increase in Fed purchases of Treasury and agency mortgage
backed securities, new credit facilities were launched to backstop
institutions and ensure the smooth functioning of a range of financial
markets, and the Fed expanded bilateral swaps with a range of central banks
to normalize conditions in dollar funding markets.

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Executive Board Assessment

[2]

Executive Directors broadly agreed with the thrust of the staff appraisal.
They expressed sympathy for the loss of lives and economic hardship caused
by the COVID-19 pandemic. They commended the authorities for their swift,
extraordinary policy response to protect livelihoods and vulnerable sectors
of the economy. Directors noted that the recovery will likely be gradual
and subject to significant risks and uncertainty. Amid the resurgence in
COVID-19 cases, a deep economic recession, and surging unemployment,
Directors underscored the need to deepen public health efforts while
continuing to use all policy tools to support the recovery and mitigate the
scarring effects of the pandemic on the U.S. economy and society.

Directors welcomed the range of fiscal measures to provide essential
lifelines to households, businesses, the healthcare sector, and
sub-national governments. They agreed that an additional sizable fiscal
package would be needed to strengthen health preparedness and sufficiently
boost demand, including through increased federal transfers to state and
local governments. Directors recognized that, once the pandemic is fully
contained, medium-term fiscal adjustment will be necessary to put debt on a
downward path. They welcomed the authorities’ commitment to high levels of
transparency and accountability in the use of public resources.

Directors noted that the pandemic has affected low-income households
disproportionately, further exacerbating poverty and inequality. They
recommended gearing fiscal policy toward strengthening the social safety
net, incentivizing work, expanding healthcare coverage, and broadening
access to quality education.

Directors appreciated the Federal Reserve’s decisive response in the early
stage of the crisis, which had helped maintain the smooth functioning of
financial markets, ease financial conditions, and relieve strains in global
dollar funding markets. With inflation and employment likely to remain
below targets for an extended period, Directors saw scope for more action,
including through expanded asset purchases and more explicit forward
guidance, while closely monitoring potential risks to financial stability.

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Directors encouraged the U.S. authorities to reverse trade restrictions and
to work constructively with partner countries to resolve trade tensions and
modernize the multilateral trading system. Many Directors noted that the
planned introduction of currency-based countervailing duties could increase
policy uncertainty, have negative spillovers, and undermine the
multilateral trading and international monetary systems.

Directors observed that the U.S. financial system has been resilient in the
face of the recent economic and financial shock. They called for continued
vigilance given risks from the recession, rising corporate leverage, a
continued migration of activity to nonbank financial institutions, and
complex interlinkages among institutions and markets. Directors emphasized
the need to preserve bank capital buffers and stringency of prudential
requirements, enhance macroprudential tools, intensify crisis preparedness,
and address data gaps. They also recommended that the authorities consider
strengthening institutional arrangements for systemic risk oversight and
introducing a more explicit financial stability mandate for principal
regulators.


United States: Selected Economic Indicators

Projections

2018

2019

2020

2021

2022

2023

2024

2025

Real GDP (% change from previous period)

2.9

2.3

-6.6

3.9

3.3

2.3

1.9

1.8

Real GDP (q4/q4)

2.5

2.3

-6.9

5.1

2.8

2.0

1.9

1.8

Output gap (% of potential GDP)

0.2

0.9

-4.9

-1.8

-0.6

-0.4

-0.4

-0.5

Unemployment rate (q4 avg.)

3.8

3.5

9.7

7.4

5.7

4.6

4.3

4.2

Current account balance (% of GDP)

-2.2

-2.2

-2.2

-2.1

-2.1

-2.1

-2.0

-2.0

Fed funds rate (end of period)

2.2

1.7

0.1

0.1

0.1

0.1

0.1

0.1

Ten-year government bond rate (q4 avg.)

3.0

1.8

0.8

1.0

1.5

1.7

1.8

1.8

PCE Inflation (q4/q4)

1.9

1.4

0.7

2.1

2.0

2.0

2.0

2.0

Core PCE Inflation (q4/q4)

1.9

1.6

0.8

1.8

1.9

1.9

1.9

1.9

Federal fiscal balance (% of GDP)

-3.8

-4.6

-18.0

-10.4

-5.4

-4.5

-4.7

-4.9

Federal debt held by the public (% of GDP)

77.4

79.2

99.6

107.4

106.8

106.8

107.4

108.3

Sources: BEA; BLS; Haver Analytics; and IMF staff
estimates.

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[1]

Under Article IV of the IMF’s Articles of Agreement, the IMF holds
bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial
information, and discusses with officials the country’s economic
developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the
Executive Board.


[2]

At the conclusion of the discussion, the Managing Director, as
Chairman of the Board, summarizes the views of Executive Directors,
and this summary is transmitted to the country’s authorities. An
explanation of any qualifiers used in summings up can be found
here:

http://www.IMF.org/external/np/sec/misc/qualifiers.htm
.


IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Randa Elnagar

Phone: +1 202 623-7100Email: MEDIA@IMF.org

@IMFSpokesperson