IMF expects the US economy to grow at 7 percent this year, the fastest annual growth rate since 1984, and continue with very strong momentum into next year. This is very good news for the U.S. and for the world economy.
Explained: Why The United States Economy Will Get Fastest Growth During COVID-19 Pandemic
New Delhi (ABC Live India): The
International Monetary Fund has concluded the United
States Article IV consultation.
informed media that IMF discussed with Chair Powell and Secretary Yellen
about the current state of the economy and the challenges ahead as the U.S.
emerges from the shadow of the pandemic.
While sharing IMF’s conclusion
on the United States economy, IMF Managing
Director said that First, the US economy is coming out on a
strong footing from the very difficult circumstances of the past year. We
expect the economy to grow at 7
percent this year, the fastest annual growth rate since 1984,
and continue with very strong momentum into next year. This is very good news
for the U.S. and for the world economy.
Our outlook is based on the
assumption that the American Jobs Plan and American Families Plan are
legislated later this year, and in a form that is similar to that proposed by
the administration. It is worth noting that these two packages would put in
place many of the policies proposed in Article IV consultations over the past
several years. We believe that these two packages will add to near-term demand,
raising GDP by a cumulative 5¼ percent over 2022-24.
And—perhaps more importantly—our assessment is that GDP will be
1 percent higher even after 10 years, thanks to the significant, positive
effects on labor force participation and productivity introduced by these two
plans. Rather than just offering a short-term boost to demand that then fades
away, the Jobs and Families Plans are expected to produce a lasting improvement
in income and living standards for many years to come. In this regard, it is
welcome to see the bipartisan agreement to move forward legislation on the
physical infrastructure parts of these two packages. Today’s agreement in the
House is an important step forward.
I am particularly impressed by the administration’s commitments
to strengthen social safety nets and increase the progressivity of the tax
system. We know that the burden of the pandemic has been borne
disproportionately by the poor, by women, and by minority households. Many of
the proposed policies--—including paid family leave, the refundable child tax
credit, support for childcare and healthcare, investments in education, and a
higher minimum wage—will directly support working mothers, markedly help black
and Hispanic families, and boost participation in the labor market.
Second, we are cognizant of the vibrant public debate about
inflation in the U.S. Certainly we have seen large consumer price movements in
recent months, and we think that those fairly high inflation readings will
continue for a few months. However, I want to emphasize that the evidence suggests
that this inflation
will be transitory and is largely a product of the relative
price movements that are occurring as the economy rebounds from the impact of
the pandemic, sometimes in a rather uneven way. We estimate that core
inflation—excluding volatile food and energy prices—could get close to 4 percent by the end of the year. After those temporary factors play out, we
expect inflation to be around 2½ percent by end-2022.
We do not see overheating as the most likely outcome. At the same time, we cannot ignore the risk that a sustained, faster rise in inflation would pose for the U.S. and world economy.
The introduction of the Federal Reserve’s new Flexible Average Inflation Targeting framework last August was timely. It has helped policymakers negotiate the uncertainties created by the pandemic and appropriately provided significant accommodation for the economy as it recovers. It also emphasizes the importance of communication and forward guidance in shaping both inflation and inflation expectations.
We believe the Fed has been clear in communicating its
intentions, and we anticipate that such transparent and proactive
communications will continue as asset purchases are scaled back and,
eventually, as interest rates move upwards. These matters for sustaining robust
growth in the US, as well as for the impact interest rates in the US have on
the world economy, especially on countries with high levels of dollar-denominated debt.
This takes me to my third point, the US’s leadership in seeking
multilateral solutions to the world’s most pressing challenges. I welcome
the U.S. administration’s efforts to provide vaccine assistance to a broad
range of countries, as well as its support for the proposed SDR allocation. I
would also like to express strong support for the proposal to establish a
global minimum corporate tax which will help reduce incentives to shift taxable
income to low-tax jurisdictions. I join Secretary Yellen in welcoming the
widespread endorsement among 130 countries for this plan.
On trade, our discussions revealed the administration’s
commitment to an open, transparent, and rules-based international system. We
are also supportive of the administration’s priority to ensure that trade
creates tangible benefits for the American people. We do not think these two
objectives are in conflict. Indeed, we believe that—with the ongoing efforts to
increase productivity and make the U.S. more competitive—a rolling back of
recent trade restrictions and tariffs, as well as a level playing field in
federal procurement, will be important forces to create good, well-paying jobs
and to strengthen living standards.
Finally, I want to welcome the administration’s renewed focus on reducing carbon emissions and boosting investments in climate change mitigation and adaptation. U.S. leadership in this area is critical for the well-being of our planet and for our future. Proposed spending on green infrastructure and efforts to remove fossil fuels subsidies are valuable steps forward. And more will have to follow. In this consultation, we have particularly argued for a greater focus on curbing emissions in the agriculture sector, and for pricing carbon, best done through a federal carbon tax, for the benefits of jobs and growth in the U.S. and of the goal of addressing the global climate challenge.