United States: Staff Report for the 2015 Article IV Consultation—Informational Annex

KEY ISSUES Strategy: The 2015 U.S. Article IV consultation centered on the prospects for higher policy rates and the outlook for, and policy response to, financial stability risks, integrating the findings of the Financial Sector Assessment Program (FSAP). Main findings and policy messages: • The underpinnings for continued growth and job creation remain in place despite momentum being sapped in recent months. • The FOMC should remain data dependent, carefully weighing the risk of weakening progress toward full employment and having to return to zero interest rates versus the risk of creating a temporary rise of inflation above the Fed’s medium-term goal and having to subsequently raise policy rates at a faster pace. • The FOMC should defer its first increase in policy rates until there are greater signs of wage or price inflation than are currently evident. Based on staff’s macroeconomic forecast, and barring upside surprises to growth and inflation, this would imply a gradual path of policy rate increases starting in the first half of 2016. • Pockets of financial vulnerabilities are emerging, putting a premium on improving the resilience of the financial system. Regulatory reforms remain incomplete and the structure of oversight has scope to be strengthened along a number of dimensions. • A credible and detailed medium-term consolidation plan is needed to address rising health and social security costs and to improve the tax system. Such a plan would provide near-term fiscal space to finance supply-side measures that support future growth. • A range of policy challenges linked to poverty, productivity, and labor force participation remain largely unaddressed.

Abstract

KEY ISSUES Strategy: The 2015 U.S. Article IV consultation centered on the prospects for higher policy rates and the outlook for, and policy response to, financial stability risks, integrating the findings of the Financial Sector Assessment Program (FSAP). Main findings and policy messages: • The underpinnings for continued growth and job creation remain in place despite momentum being sapped in recent months. • The FOMC should remain data dependent, carefully weighing the risk of weakening progress toward full employment and having to return to zero interest rates versus the risk of creating a temporary rise of inflation above the Fed’s medium-term goal and having to subsequently raise policy rates at a faster pace. • The FOMC should defer its first increase in policy rates until there are greater signs of wage or price inflation than are currently evident. Based on staff’s macroeconomic forecast, and barring upside surprises to growth and inflation, this would imply a gradual path of policy rate increases starting in the first half of 2016. • Pockets of financial vulnerabilities are emerging, putting a premium on improving the resilience of the financial system. Regulatory reforms remain incomplete and the structure of oversight has scope to be strengthened along a number of dimensions. • A credible and detailed medium-term consolidation plan is needed to address rising health and social security costs and to improve the tax system. Such a plan would provide near-term fiscal space to finance supply-side measures that support future growth. • A range of policy challenges linked to poverty, productivity, and labor force participation remain largely unaddressed.

Fund Relations

(As of May 31, 2015)

Membership Status: Joined 12/27/45; Article VIII

General Resources Account:

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SDR Department:

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Outstanding Purchases and Loans: None

Financial Arrangements: None

Projected Payments to the Fund:

(SDR Million; based on existing use of resources and present holdings of SDRs):

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Exchange Rate Arrangements. The exchange rate of the U.S. dollar floats independently and is determined freely in the foreign exchange market. The United States has accepted the obligations under Article VIII, Sections 2(a), 3 and 4 of the IMF’s Articles of Agreement and maintains an exchange system free of multiple currency practices and restrictions on the making of payments and transfers for current international transactions, except for those measures imposed for security reasons. The United States notifies the maintenance of measures imposed for security reasons under Executive Board Decision No. 144–(52/51). The last of these notifications was made June 19, 2014 (EBD/14/35).

Article IV Consultation. The 2014 Article IV consultation was concluded on July 23, 2014 and the Staff Report was published as IMF Country Report No. 14/221. A fiscal Report of Observance of Standards and Codes was completed in the context of the 2003 consultation. The 2015 Article IV discussions took place May 11–May 19, 2015. Concluding meetings with Chair Yellen of the Board of Governors of the Federal Reserve System, and Treasury Secretary Lew occurred on June 1 and June 3 respectively. The Managing Director, Ms. Lagarde, the Deputy Managing Director, Mr. Zhu, and WHD Director, Mr. Werner, participated in the concluding meetings. A press conference on the consultation was held on June 4, 2015. The team comprised Nigel Chalk (head), Stephan Danninger, Ravi Balakrishnan, Ali Alichi, Juan Solé, Jarkko Turunen, and Andrea Pescatori (all WHD); Per Stefan Laseen (SPR); and Deniz Igan (RES). Ian Parry (FAD), Aditya Narain (FSAP head), Martin Cihak and Simon Gray (all MCM) participated in some of the meetings. Mr. Sobel (Executive Director), Mr. Haarsager (Senior Advisor) and Ms. Douglass Kochman (Advisor) attended some of the meetings. Outreach included discussions with Congressional staff, U.S. Chamber of Commerce, AFL-CIO, private sector representatives and think tanks. Unless an objection from the authorities of the United States is received prior to the conclusion of the Board’s consideration, the document will be published.

A Financial System Assessment Program involved two missions, during October–November 2014, and February–March, 2015. The Financial System Stability Assessment is scheduled to be discussed at the Board, together with the 2015 Article IV Consultation, on July 6, 2015.

Statistical Issues

Statistical Issues. Comprehensive economic data are available for the United States on a timely basis. The quality, coverage, periodicity, and timeliness of U.S. economic data are adequate for surveillance. The United States has subscribed to the Special Data Dissemination Standard (SDDS) and its metadata are posted on the Dissemination Standard Bulletin Board (DSBB).

United States. Table of Common Indicators Required for Surveillance

(As of June 10, 2015)

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Daily (D), Weekly (W), Biweekly (B), Monthly (M), Quarterly (Q), Annually (A); NA: Not Available.

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

United States: Staff Report for the 2015 Article IV Consultation
Author: International Monetary Fund. Western Hemisphere Dept.