On June 21, 2019, the Executive Board of the International Monetary
Fund (IMF) concluded the Article IV consultation with the United
The U.S. economy is in the longest expansion in recorded history.
Unemployment is at levels not seen since the late 1960s, and economic
activity is growing above potential, aided by a fiscal stimulus and
supportive financial conditions. Real wages are rising, including for
those at the lower end of the income distribution, and productivity
growth appears to be recovering. Against this backdrop, inflationary
pressures remain remarkably subdued.
Despite these positive macroeconomic outcomes, the benefits from this
decade-long expansion have not been shared as widely as they could.
Average life expectancy is falling, income and wealth polarization have
increased, poverty has fallen but remains higher than in other advanced
economies, and social mobility has steadily eroded.
In addition, a number of medium-term risks are growing. The financial
system appears healthy but vulnerabilities in leveraged corporates and,
potentially, in the nonbank system are elevated by historical
standards. An abrupt reversal of the recent supportive financial market
conditions or a deepening of ongoing trade disputes represent material
risks to the U.S. economy, with concomitant negative outward
spillovers. The U.S. public debt-to-GDP ratio is on an unsustainable
path and is expected to continue rising throughout the medium-term, as
aging related spending rises.
The consultation focused on the policies needed to address these
risks, preserve financial stability, support the standard of living
for low- and middle-income households, and rebuild fiscal space.
Executive Board Assessment
Executive Directors welcomed the continued robust performance of the
U.S. economy, which is about to mark its longest expansion in recorded
history. They noted the achievements of low unemployment, rising real
wages, and subdued inflation. Economic prospects remain favorable and
risks were viewed to be broadly balanced. Nevertheless, Directors
observed that public debt is on an unsustainable path, trade tensions
and uncertainties are continuing, and medium-term risks to financial
stability are rising. Continued vigilance, prudent macroeconomic
policies, and supply-side reforms would be critical to securing strong,
balanced, and inclusive growth, generating positive spillovers to the
rest of the world.
Directors called on the authorities to address external imbalances
through fiscal adjustment and supply-side reforms that enhance
productivity and competitiveness. They encouraged the United States to
work constructively and cooperatively with its trading partners to
address distortions in the trading system and resolve trade tensions in
a manner that promotes a more open, stable, and transparent rules-based
international trade system.
Directors underscored the need to ensure that the benefits of the
strong economy are broadly shared. They considered it a priority to
address rising income inequality and improve social outcomes. To this
end, they encouraged initiatives to reform the educational system,
healthcare, and social programs. Specifically, Directors recommended
expanding the Earned Income Tax Credit, providing family-friendly
benefits, and improving healthcare coverage while tempering costs.
Directors stressed that policy adjustments are necessary to lower the
fiscal deficit and put public debt on a gradual downward path over the
medium term. They recommended that the authorities consider possible
options to better control entitlement spending and raise indirect
taxes. They considered that these efforts would create fiscal space to
expand needed investments in infrastructure and human capital. They
also saw scope for further improving the budgetary process.
Directors welcomed the Federal Reserve’s pause in interest rate
adjustments. They agreed that any further increases in the federal
funds rate should be deferred until there are clearer signs of wage or
price inflation. In this regard, they appreciated the authorities’
continued adherence to a data-dependent approach and clear,
forward-looking communication. Directors also welcomed the authorities’
readiness to consider refinements to the monetary policy framework
following the Federal Reserve’s review of its monetary policy strategy,
tools, and communication.
Directors observed that the financial system appears healthy, with
well-capitalized banks. However, risks are building up among leveraged
corporations and, possibly, in the nonbank sector. An abrupt reversal
of supportive financial market conditions could weigh on real activity
and job creation, with negative outward spillovers. Directors
emphasized the importance of enhancing the risk-based approach to
regulation and supervision, strengthening the oversight of nonbanks,
and addressing remaining data gaps.
Directors welcomed the authorities’ voluntary participation in the
Fund’s enhanced governance framework on the supply and facilitation of
corruption. They encouraged continued efforts to improve entity
transparency and beneficial ownership information.