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The IMF is out with its latest review of the US economy and it paints a picture of stumbling growth and inflation slowly returning to target.
The IMF said the US economy in 2022 demonstrated resilience amidst fiscal and monetary policy changes, with consumer demand buoyed by the utilization of pent-up savings and steady real disposable income growth. Notably, labor force participation rose, unemployment rates dropped to historical lows, and real wages exceeded inflation since mid-2022. 1.2% growth is projected for 2024, despite expected modest unemployment increases to around 4.5%.
Significant poverty reduction was observed in 2021 due to wage increases for low-income workers, job growth, and pandemic-related government aid. However, these gains were largely reversed in 2022 as pandemic benefits expired and real wage growth slowed for lower-income workers.
Strong demand and labor market outcomes have contributed to persistent inflation, with goods inflation stabilizing and expected decrease in shelter price growth. Despite expected reductions in 2023, inflation will remain above the Federal Reserve’s 2% target until 2024. To curb inflation, extended tight monetary policy is needed, with a proposed federal funds rate of 5.25-5.5% until late 2024. Amidst economic uncertainties, the IMF said it’s critical for the Federal Reserve to provide transparent policy rate assessments and maintain high interest rates over an extended period.