The International Monetary Fund (IMF) on Tuesday slashed U.S. growth forecast for 2022 to 2.3 percent, just less than a month after it cut the forecast to 2.9 percent.
In April, the IMF projected U.S. GDP to grow by 3.7 percent this year.
The United States has "recovered quickly" from the pandemic shock, as a result of the unprecedented monetary and fiscal policy support, the IMF"s Executive Board said in a statement after concluding the annual Article IV consultation to review the U.S. economy.
And yet IMF executive directors noted that the rapid rebound is accompanied by a "broad-based surge in inflation," posing "systemic risks" to both the United States and the global economy.
Wage and price pressures are broad based and have spread quickly across the economy, the statement read. "Longer-run measures of inflation expectations have started to drift higher and shorter horizon measures of inflation expectations have increased significantly," it said.
"In this context, they stressed that the policy priority must be to expeditiously slow price growth without precipitating a recession," said the statement.
Executive directors concurred that avoiding a recession in the United States is "becoming increasingly challenging" and that the Russia-Ukraine conflict, the lingering COVID-19 pandemic, and supply side constraints create "additional challenges."
Despite rapid declining of fiscal deficit, public debt is markedly higher than its pre-pandemic levels and is expected to continue to rise as a share of GDP over the medium term.
A number of executive directors saw merit in implementing a medium-term strategy for fiscal deficit reduction, which would help place public debt on a downward path and support anchoring inflation expectations.
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. The staff then prepares a report, which forms the basis for discussion by the Executive Board.
