IMF slashes U.S. growth forecast
The International Monetary Fund has substantially downgraded its U.S. economic growth forecasts and suggested the Federal Reserve should remain on hold with interest rates until the first half of 2016, even though it described the U.S. economy’s troubles so far this year as “temporary” setbacks.
In a statement following its latest consultation on the U.S. economy, released Thursday morning, the global financial agency forecast that U.S. gross domestic product growth would be 2.5 per cent in 2015, down from its previous estimate of 3.1 per cent. It trimmed its 2016 forecast to 3 per cent from 3.1 per cent.
“The U.S. economy’s momentum in the first quarter was derailed by unfavorable weather, a sharp contraction in oil sector investment, the West Coast port strike and the effects of the stronger dollar. These developments represent a temporary drag but not a long-lasting brake on growth. A solid labour market, accommodative financial conditions and cheaper oil should support a more dynamic path for the remainder of the year,” the IMF said.
“Despite this, the weaker out-turn in the first few months will unavoidably pull down 2015 growth.”
U.S. GDP grew by 2.4 per cent in 2014.
The slower pace of the economy in the first few months of this year also puts no pressure on the Fed to start raising interest rates this year, as many forecasters have been anticipating.
“The U.S. economy remains below potential, wage and price pressures are expected to remain low, and inflation expectations appear well-anchored,” the statement said. “There is a strong case for waiting to raise rates until there are more tangible signs of wage or price inflation than are currently evident.”
“If data evolve in line with the [IMF’s] macroeconomic forecasts, and barring upside surprises to growth or inflation, such a policy would imply keeping the Fed funds rate at 0-0.25 per cent into the first half of 2016.”
The IMF projected U.S. unemployment at 5.3 per cent in 2015 and 5.2 per cent in 2016.
“Labour markets have steadily repaired over the past year and several indicators suggest a jobs outlook that is returning to pre-crisis norms. However, long-term unemployment, subdued participation and high levels of part-time work point to remaining employment slack. Wage indicators on the whole have shown only tepid growth.”
It added that due to the sharp rise in the U.S. dollar, sharp decline in energy prices and falling global prices for tradeable goods, it expects U.S. inflation to continue to track lower through the third quarter.
“Inflation should start rising later in the year, but reach the Federal Reserve’s 2 per cent medium-term objective only by mid 2017,” it predicted.
In a statement following its latest consultation on the U.S. economy, released Thursday morning, the global financial agency forecast that U.S. gross domestic product growth would be 2.5 per cent in 2015, down from its previous estimate of 3.1 per cent. It trimmed its 2016 forecast to 3 per cent from 3.1 per cent.
“The U.S. economy’s momentum in the first quarter was derailed by unfavorable weather, a sharp contraction in oil sector investment, the West Coast port strike and the effects of the stronger dollar. These developments represent a temporary drag but not a long-lasting brake on growth. A solid labour market, accommodative financial conditions and cheaper oil should support a more dynamic path for the remainder of the year,” the IMF said.
“Despite this, the weaker out-turn in the first few months will unavoidably pull down 2015 growth.”
U.S. GDP grew by 2.4 per cent in 2014.
The slower pace of the economy in the first few months of this year also puts no pressure on the Fed to start raising interest rates this year, as many forecasters have been anticipating.
“The U.S. economy remains below potential, wage and price pressures are expected to remain low, and inflation expectations appear well-anchored,” the statement said. “There is a strong case for waiting to raise rates until there are more tangible signs of wage or price inflation than are currently evident.”
“If data evolve in line with the [IMF’s] macroeconomic forecasts, and barring upside surprises to growth or inflation, such a policy would imply keeping the Fed funds rate at 0-0.25 per cent into the first half of 2016.”
The IMF projected U.S. unemployment at 5.3 per cent in 2015 and 5.2 per cent in 2016.
“Labour markets have steadily repaired over the past year and several indicators suggest a jobs outlook that is returning to pre-crisis norms. However, long-term unemployment, subdued participation and high levels of part-time work point to remaining employment slack. Wage indicators on the whole have shown only tepid growth.”
It added that due to the sharp rise in the U.S. dollar, sharp decline in energy prices and falling global prices for tradeable goods, it expects U.S. inflation to continue to track lower through the third quarter.
“Inflation should start rising later in the year, but reach the Federal Reserve’s 2 per cent medium-term objective only by mid 2017,” it predicted.
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