2019 ARTICLE IV CONSULTATION—PRESS RELEASE; STAFF REPORT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR THE UNITED STATES
Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. In the context of the 2018 Article IV consultation with United States, the following documents have been released and are included in this package:
A Press Release summarizing the views of the Executive Board as expressed during its June 21, 2019 consideration of the staff report that concluded the Article IV consultation with the United States.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on June 21, 2019, following discussions that ended on May 28, 2019, with the officials of the United States on economic developments and policies. Based on information available at the time of these discussions, the staff report was completed on June 6, 2019.
An Informational Annex prepared by the IMF staff.
A Statement by the Staff Representative on the United States.
A Statement by the Executive Director for the United States.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
International Monetary Fund • Publication Services
The U.S. economy is in the longest expansion in recorded history. Unemployment is at levels not seen since the late 1960s, real wages are rising, and inflationary pressures remain subdued. Economic activity, while still growing above potential, is expected to slow to around 2.6 percent this year and 1.9 percent in 2020.
Despite these positive macroeconomic outcomes, the benefits from this decade-long expansion have not been shared as widely as they could. A broader set of social indicators shows a troubling picture. Average life expectancy is falling, income and wealth polarization have increased, poverty has fallen but remains higher than in other advanced economies, social mobility has steadily eroded, and education and health outcomes are discouraging.
The financial system appears healthy but medium-term risks to financial stability are rising. More accommodative guidance by global central banks has supported a broad-based increase in asset prices and a compression in the market pricing of volatility. At the same time, vulnerabilities in leveraged corporates and, potentially, in the nonbank system are elevated by historical standards. There has been little institutional response to counter these growing risks.
An abrupt reversal of the recent supportive financial market conditions represents a material downside risk to the U.S., with spillover implications for other economies. A sudden tightening of financial conditions could interact with high levels of corporate and public debt, creating a feedback loop between financial conditions and real activity, with negative implications for financial stability. This would undoubtedly have negative outward spillovers for non-U.S. corporates, sovereigns and financial institutions, particularly those with significant leverage or rollover needs in U.S. dollars.
The U.S. public debt is on an unsustainable path. Policy adjustments are needed to lower the fiscal deficit and to put public debt on a gradual downward path over the medium term. There are a range of possible policy options, but any successful package will likely require steps to address the expected increases in entitlement spending on health and social security, to raise indirect taxes, and to institute a federal carbon tax.
Further increases in the federal funds rate should be deferred until there are greater signs of wage or price inflation than are currently evident. Faced with falling inflation, anchored inflation expectations, a flat trade-off between inflation and slack, and continued uncertainties around the global outlook, the balance of risks argues in favor of a pause to further changes in monetary policy. Such a pause will give policymakers time to gauge the balance of risks to both inflation and employment outcomes and to build a clearer picture of whether further adjustments in the federal funds rate are warranted.
Providing greater clarity, and a more holistic picture, of the expected evolution of the operating framework for monetary policy would be valuable. Operational changes could involve introducing a standing repo facility (to help cap spikes in money market rates); moving away from the federal funds rate as the operating target; and returning to a point target for the policy rate (rather than the current target range).
For the global economy to function well, it needs to be able to rely on a more open, more stable, and more transparent, rules-based international trade system. The U.S. and its trading partners should work constructively to better address distortions in the trading system that are partly rooted in the system’s inability to adapt to long-term changes in the international environment. It is especially important that the trade tensions between the U.S. and China—which represent a threat to the global outlook and create important negative spillovers to other countries—are quickly resolved through a comprehensive agreement that strengthens the international system.
The external position is judged to be moderately weaker than implied by medium-term fundamentals and desirable policies. The current account deficit is expected to rise modestly over the medium-term, moving it further away from the estimated current account norm. The real effective exchange rate remains somewhat overvalued. The combination of gradual fiscal consolidation, an improving oil balance, and supply-side reforms are necessary to lower the current account deficit (not through tariffs or other policy efforts aimed at reducing bilateral deficits).
Nigel Chalk (WHD) and Tam Bayoumi (SPR)
Discussions took place in New York (March 5–7) and in Washington D.C. (April 29-May 13). Concluding meetings with Chair Powell and Secretary Mnuchin were held on May 23 and 28, respectively. The team comprised Nigel Chalk (head), Yasser Abdih, Carlos Caceres, Emanuel Kopp, Daniel Leigh, Suchanan Tambunlertchai (all WHD), Steve Dawe (LEG), Diego Cerdeiro and Elizabeth Van Heuvelen (SPR). Javier Ochoa and Peter Williams provided valuable assistance.
A ROBUST AND CONTINUING EXPANSION
RISING MEDIUM-TERM FINANCIAL STABILITY RISKS
THE POTENTIAL FOR A RISING EXTERNAL IMBALANCE
TROUBLING SOCIAL OUTCOMES
THE U.S. FISCAL POSITION IS UNSUSTAINABLE
MONETARY NORMALIZATION—REST STOP OR END OF THE LINE?
A MORE OPEN, STABLE, AND TRANSPARENT, RULES-BASED INTERNATIONAL SYSTEM FOR TRADE AND INVESTMENT
GOVERNANCE AND TRANSPARENCY
1. Macro-Financial Links Between Household Wealth and Consumption
2. Financial System Oversight Since the 2018 Article IV
3. Recent Developments in the U.S. Energy Sector
4. Outward Spillovers of Trade Tensions
5. The Social and Macroeconomic Toll of Opioid Addiction
6. Social Assistance Programs
7. The Impact of the Corporate Income Tax Cut
8. Salient Risks to Growth and Inflation
9. Hysteresis and the Scope for Continued Monetary Accommodation
1. An Enduring Expansion with Low Inflation
2. Financial Sector Vulnerabilities
3. The Nature of Poverty in the United States
4. A Decades-Long Rise in Income and Wealth Inequality
5. A Secular Decline in Socioeconomic Mobility
6. Education Indicators
1. Selected Economic Indicators
2. Balance of Payments
3. Federal and General Government Finances
4. Core Financial Soundness Indicators for Deposit Takers
I. External Sector Assessment
II. Risk Assessment Matrix
III. Public Debt Sustainability Analysis
IV. External Debt Sustainability Analysis
V. Implementation of FSAP Recommendations
Front Matter Page
STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION— INFORMATIONAL ANNEX
June 6, 2019
The Western Hemisphere Department (in consultation with other departments)