Speech

Managing Director's Opening Remarks at the United States 2022 Article IV Press Conference

June 24, 2022

Welcome to the press conference to discuss the findings of the 2022 U.S. Article IV.

As you will have seen, we released a concluding statement of the mission. We also just concluded a very useful set of discussions with Chair Powell and Secretary Yellen.

Let me give you a brief summary of the main messages from the consultation.

Despite the very difficult circumstances and the tragic loss of life, the U.S. economy has staged a strong recovery from the COVID-19 shock. The positive effects of unprecedented fiscal and monetary support during this crisis are clear. The unemployment rate has now returned to end-2019 levels. Output is close to its pre-pandemic trend. Poverty has fallen. And 8½ million jobs have been created since end-2020. These positive outcomes have also supported the rebound in the global economy.

However, this rapid rebound has had unwelcome side effects. Most notably, there has been a significant acceleration in wage and price inflation. These pressures are now broad based and go well beyond increases in energy and food prices.

Tackling inflation is a top priority of the administration and my discussions with Secretary Yellen and Chair Powell left no doubt as to their commitment to bring inflation back down. There was broad agreement that price stability was a critical ingredient to boosting household incomes and ensuring strong and sustained growth.   

Of course, the responsibility to restore low and stable inflation rests with the Federal Reserve. They have a strong track record to draw on in their efforts. Since the last Article IV consultation, as inflation proved more persistent, the Federal Reserve rightly reacted by signaling its intent to pursue a much tighter policy stance. It reiterated, and deepened, this guidance at last week’s FOMC meeting. We believe the path for the policy rate that the Fed has signaled, to quickly get the federal funds rate to 3½ to 4 percent, is the correct policy to bring down inflation. We believe this policy path should create an up-front tightening of financial conditions which will quickly bring inflation back to target. We also support the Fed’s decision to reduce its balance sheet.

In sum, we are confident the Fed will be effective in bringing inflation down, will remain data dependent and, as conditions change, will telegraph clearly where policy is likely to go. This is important not just for the U.S. but also for the global economy.

Based on the policy path outlined at the June FOMC meeting, and an expected reduction in the fiscal deficit, we expect the U.S. economy will slow. We are conscious that there is a narrowing path to avoiding a recession in the U.S. We also have to recognize the uncertainty of the current situation. The economy continues to recover from the pandemic and important shocks are buffeting the economy from the Russian invasion of Ukraine and from lockdowns in China. Further negative shocks would inevitably make the situation more difficult.

Let me turn to fiscal policies. We, at the IMF, have been strongly supportive of the “Build Back Better” agenda of the administration. We believe this set of policies would help reshape the U.S. economy, release supply-side constraints, improve the safety net, support labor force participation, and incentivize investment and innovation. However, the fact this policy package has failed to get broader support among legislators represents a missed opportunity. We think the administration should continue making the case for changes to tax, spending, and immigration policy that would help create jobs, increase supply and support the poor.

The administration’s policy goals include important policies to facilitate a smooth, speedy transition to a low carbon economy. We hope those pieces of legislation can be approved quickly. In a broader international context, we have made the case for an international carbon price floor to jump-start emissions reductions.

We have also supported a range of other strategies like sectoral feebates, regulatory restraints on emissions, the elimination of subsidies for fossil fuels and carbon-intensive agriculture, and a reprioritization of public spending toward mitigation and adaptation goals. In this transition, we believe the administration should attach a high priority to policies that help ensure that workers and communities benefit from this transition so that it succeeds in improving the living standards of all Americans.

Finally, let me say a few words on trade. During our discussions, the authorities underlined their commitment to an open, transparent, and rules-based system of international trade. It is with this context, especially at a time when inflation is high and supply chains are strained, that we can see clear benefits in rolling back the tariffs that were introduced over the last five years. We also see scope for the U.S. to work with its trading partners to address some of the longstanding concerns and distortions that we know exist in the global trading system.

With those introductory comments I would now like to turn to your questions.