‘Narrowing Path’ to Avoid US Recession - IMF
(29 June 2022 – United States) The International Monetary Fund (IMF) predicts the United States (US) may "narrowly" avoid a recession after cutting its economic growth forecast in response to hawkish Federal Reserve interest rate rises which dented consumer demand.
The IMF now expects US Gross Domestic Product (GDP) to grow by three percent in 2022 , less than its most recent forecast of almost four percent posted in April as reported in the international body’s annual assessment of US economic policies.
The IMF cut its US growth forecast to 1.7 percent from 2.3 percent for 2023 and now expects growth to stagnate at 0.8 percent in 2024. US inflation by the Fed's preferred measure is tracking at more than three times the US central bank's two percent target.
"We are conscious that there is a narrowing path to avoiding a recession in the US noting the outlook has a high degree of uncertainty. The economy continues to recover from the pandemic and important shocks are buffeting the economy from the Russian invasion of Ukraine and from lockdowns in China. Further negative shocks would inevitably make the situation more difficult” commented IMF Managing Director, Kristalina Georgieva.
“The responsibility to restore low and stable inflation rests with the Fed, and that the fund views the US central bank's desire to quickly bring its benchmark overnight interest rate up to the 3.5 percent to four percent level as the correct policy to bring down inflation with the Fed's current policy rate ranging from 1.50 percent to 1.75 percent. We believe this policy path should create an upfront tightening of financial conditions which will quickly bring inflation back to target. We also support the Fed's decision to reduce its balance sheet" Georgieva said.
“The outlook for the economy is worse than it was during the stagflation of the 1980s, and the US is probably headed into a recession, rather than a soft landing. You are stuck with a lot of liquidity in the system and rates that look ridiculously low relative to the levels of growth and inflation that we are seeing and where employment is” said JPMorgan Asset Management Chief Investment Officer, Bob Michele.