The US is struggling with the harshest inflation in the last 4 decades

The US is struggling with the harshest inflation in the last 4 decades

Recently, the International Monetary Fund (IMF) has again lowered its growth forecasts for the US economy, stressing that avoiding recession by the world’s largest economy is becoming an increasingly difficult goal to avoid.

Moreover, the International Monetary Fund (IMF) has also lowered its growth forecasts for the US economy this year and next year and raised unemployment rate estimates to 2025, warning that widespread inflation will pose “systemic risks” to both for the country as well as for the world economy.

Currently, the gross domestic product of the world’s largest economy will grow by 2.3% this year, the Washington-based creditor’s executive board said in a so-called Article IV consultation released on Tuesday. This figure is lower than the 2.9% expected last month, when his staff concluded a visit for the report.

The IMF also now sees the unemployment rate at 3.7% this year, compared to the staff’s previous forecast of 3.2%, and expects this figure to exceed 5% in both 2024 and 2025, in the USA.

In the economic and financial context, the IMF did not offer any reason to reduce the US economic growth forecast compared to last month. However, its new forecast comes after the publication on June 30 of data from the Department of Commerce, which showed that inflation-adjusted consumer spending fell in May for the first time this year and also revised downward spending. from previous months.

And the Federal Reserve has acted aggressively to fight the highest inflation in 40 years, in the context in which it was criticized for leaving monetary policy too light for too long, while the economy recovered after Covid-19 .

Decision makers raised interest rates by 75 basis points last month, the biggest move since 1994, and most Fed officials said another similar increase is planned for July.

US GDP contracted in the first quarter, and indicators of economic activity, such as the popular Fed indicator in Atlanta, GDPNow, suggest that this will happen again in the second quarter, when the data will be released on July 28, writes Bloomberg.

Avoiding the recession is becoming an increasingly difficult goal

In their view, “the US political priority must be a rapid slowdown in price growth without precipitating a recession,” IMF executives said. Avoiding a recession in the US “is becoming increasingly difficult”, with the Russian invasion of Ukraine, the persistent Covid-19 pandemic and supply constraints creating additional difficulties, they said.

Directors acknowledged that regulating the inflation response is at stake and that the wrong assessment of the policy mix – in both directions – will lead to considerable costs at the national level and negative effects on the world economy, according to the statement.

Therefore, Article IV consultations are the IMF’s assessment of countries’ economic and financial developments, following meetings with legislators and civil servants.