Speech

Opening Remarks by IMF Managing Director Christine Lagarde At the United States 2019 Article IV Press Conference

June 6, 2019

As prepared for delivery

Good morning. Let me start by saying there is a lot for Americans to be proud of. In a matter of weeks, the U.S. economy will be in the longest expansion in recorded history. This is an important achievement, driven by robust private sector demand and by policy choices that have helped spur growth and job creation.

Unemployment is at levels not seen since the late 1960s and wages and household incomes are rising. This is happening at a time when inflationary pressures in the U.S. remain very subdued.

Our expectation is that economic activity will grow by 2.6 percent this year and 1.9 percent in 2020. This represents an increase in our 2019 growth forecast by around 0.3 percentage points.

As I said, we are seeing a lot of positives in the macroeconomic outcomes.

However, we are concerned that the benefits from this decade-long expansion have, in general, not been shared as widely as they could have been.

If we look at a broad set of social indicators, we see a challenging picture.

Average life expectancy has trended downward in recent years, income and wealth polarization have increased, social mobility has steadily eroded, education and health outcomes are suboptimal, and while the poverty rate is falling, it remains higher than in other advanced economies.

We believe that more attention is warranted to promoting inclusive growth to social outcomes more into line with the good macroeconomic developments.

There are policies that can achieve this. We have outlined some of them in the concluding statement of the mission but I want to highlight just a few where there seems to be broad-based support: instituting paid family leave, expanding the very effective Earned Income Tax Credit, and helping working families with child and dependent care. All of these would provide a lifeline to families and help support social mobility by making it easier for them to enter the workforce and to pursue a fulfilling career.

I also want to highlight the important work that is underway by the Federal, state and municipal governments to tackle the current opioid crisis in the U.S. The human costs of this epidemic are tragic, there are no easy solutions, but it is rightly a bipartisan priority of the administration and for Congress.

As you know, over the first few months of this year, financial market conditions improved markedly. This is good for near-term growth, reducing the cost and increasing access to financing. However, we are concerned that an abrupt reversal of financial market conditions could represent a material downside risk to the U.S. In particular, a sudden tightening of financial conditions could interact adversely with the high levels of corporate and public debt, and create a feedback loop that would also weigh on real activity and job creation. This is something to watch out for. Such a shift in financial conditions would also have negative outward spillovers for corporates, sovereigns and financial institutions in other countries, particularly those with significant leverage or rollover needs in U.S. dollars.

As we have highlighted in past consultations, the U.S. public debt is on an unsustainable path. Policy adjustments are needed to lower the fiscal deficit and to put public debt on a gradual downward path over the medium term. There are a range of possible policy options. However, in our view, any successful package will likely require steps to address the expected increases in entitlement spending on health and social security, to raise indirect taxes, and to institute a federal carbon tax.

As you know, earlier this year the Federal Reserve indicated it was pausing its process of raising interest rates. We fully agree with that approach and believe that this will give policymakers time to gauge the balance of risks to both inflation and employment outcomes and to build a clearer picture of whether further adjustments in the federal funds rate are warranted.

In any case, it will be important for the Federal Reserve to remain data dependent and to continue to communicate well, as it has been doing, of its assessment of evolving economic conditions and its expectations for future monetary policy.

Turning now to trade, which is on many people’s minds. For the global economy to function well, it needs to be able to rely on a more open, more stable, and more transparent, rules-based international trade system. As such, it will be essential that the U.S. and its trading partners work constructively together to better address distortions in the trading system. It is especially important that the trade tensions between the U.S. and its trading partners including China and Mexico—which, as I have said before, represent a threat to the global outlook and create important negative spillovers to other countries—are quickly resolved through a comprehensive agreement that results in a stronger and more integrated international trading system. As we mentioned before, nobody wins a trade war.

With these brief opening remarks, Alejandro and the team will take your questions.