Source: International Monetary Fund
June 24, 2022
Managing Director, IMF
Director, IMF Western Hemisphere
Director, IMF Communications Department
Deputy Director, IMF Western Hemisphere
* * * * *
MR. RICE: Hello, everyone, and welcome to this press conference on behalf of the International Monetary Fund. I’m Gerry Rice of the Communications Department and we are on the record today. Lovely to see everyone. Thank you for joining us. I see some colleagues on the screen here and we’ll take questions online as well.
Today, we are focusing on the IMF Staff Consultation with the U.S. authorities on the U.S. economy. Those of you who follow the IMF know that this is something we do on an annual basis. So, we will be talking about that this afternoon. The document has already been distributed to you. I hope you’ve had to a chance to look at it and we look forward to your questions just in a second.
Again, those of you who follow the Fund know that this is the Staff Concluding Statement to be followed in several weeks’ time by the Board discussion of this Article IV and Board approval of the final report. And in the usual way, we will, of course, publish that and share it with you. That will be in several weeks’ time.
I am very pleased to tell you that we have with us this afternoon for this discussion, the Managing Director of the IMF, Kristalina Georgieva. We also have with us the Director of our Western Hemisphere Department, Ilan Goldfajn. Ilan is joining us virtually. And we also have with us the Deputy Director of our Western Hemisphere Department and the Mission Chief for the United States at the IMF, Nigel Chalk.
So, with that, I’m going to ask Kristalina to introduce the topic and then look forward to turning to your questions online. Kristalina, please.
MS. GEORGIEVA: Thank you very much, Gerry. And welcome to the press conference to discuss the findings of our 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.
So, let me give you a brief summary of the main messages from the consultation. Starting from the rapid and successful recovery of the U.S. economy from the COVID-19 shock, despite the painful impact on people, loss of life, and suffering, we are seeing a strong U.S. economy that has contributed also to global recovery. But the positive effects of unprecedented fiscal and monetary support during this crisis that are clear, are also complemented with some downside effects.
So, let’s look at the positive. The unemployment rate has now returned to end-2019 levels. Output is close to its pre-pandemic trend. Poverty has fallen. And 8 1/2 million jobs have been created since end-2020. That has been a plus for the rebound of 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, as well as with the Fed Chair, Chair Powell, left no doubt as to their commitment to bring inflation back down. There was broad agreement that price stability is 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 their experience and move forward with successful 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 its last FOMC meeting.
We believe the path for the policy rate that the Fed has signaled, to quickly get the federal funds rate somewhere between 3 1/2 and 4 percent, is the correct policy to bring down inflation. We also believe this policy path should create an upfront 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. And this is important not just for the U.S. It is important for the global economy.
Based on the policy path outlined at the June Federal Open Market Committee, the FOMC meeting, and unexpected 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 buffering the economy from the Russian invasion of Ukraine and from lockdowns in China. In other words, there is a lot that is exogenous, but is impacting the U.S. Further negative shocks would inevitably make the situation more difficult.
Let me turn to the fiscal policies. At the IMF, we 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 — bring down supply-side constraints, improve the safety net, support labor force participation, and incentivize investment and innovation.
It is a missed opportunity that this policy package has failed to get broader support among legislators. It is our view that the administration needs to 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 also pursues important policies to facilitate a smooth, speedy transition to a low carbon economy. We hope these pieces of legislation can be approved, can be approved quickly.
In a broader international context, we have made the case for an international carbon price floor to jump-start emission 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 towards mitigation and adaptation goals. We support the administration attaching a high priority to policies that help ensure that workers and communities benefit from this transition so that it succeeds improving the living standards of all Americans.
And, finally, let me say just 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.
So, let me turn now the floor to you for your questions. Thank you.
MR. RICE: Thank you very much, Kristalina. And we will share Kristalina’s remarks made just now with you. I see colleagues beginning to raise their hands. Andrea, I think you were first. Andrea Shalal, please, of Reuters.
QUESTIONER: Thank you so much. Thank you for doing this. Kristalina, you know, you’ve reduced the forecast now for the U.S. economy by nearly one full percentage point. I know that you’ve said that there will be, you know, a downgrade of the global economy, or global economic forecast, as well. Can you be more specific? Will it be around the same amount as what you’re reducing for the U.S. economy?
And then if I could ask you why you are confident that, you know, a recession can be avoided? A lot of people, including some pretty significant economists, have to started to say things that a U.S. recession is inevitable.
MS. GEORGIEVA: Thanks very much, Andrea. We will be coming very soon with our revised projections within just a couple of weeks in July. At this point, all I can say is that we are looking at the U.S. economy and in our baseline scenario, it is narrowly avoiding falling into recession. But it doesn’t mean that we are not mindful of the risks.
We are actually seeing very significant downside risks this year and especially next year. Why we think that there is — it is a narrowing path, but there is a path, because of the strength of the U.S. economy with which it enters this period of tightening. The fact that households have accumulated significant savings, and especially for this year, these savings are a cushion. They do provide some incentive for the economy to function.
And I am happy to pass the floor to either Ilan or Nigel, if you would like to add a bit more. But let’s be clear, there are very significant downside risks and they are particularly concerning going into 2023. Ilan?
MR. GOLDFAJN: Maybe I could just — maybe I could just add although there is, of course, a narrowing path to avoid the recession as Kristalina mentioned, there are risks. There are a lot of uncertainty going forward. But the U.S. economy is very strong and this time around, there are a lot of specific issues regarding inflation that have brought inflation up related to supply chains, related to the COVID, to the China-related restrictions.
And a lot of these issues have raised and make this case a very particular case around. So, it is true that monetary policy will need to bring down inflation and this is the most important factor today and the most important role that the Fed has. But it is also true that there are specific issues this time around and they will weigh in the way down and certainly we will not need as much as a demand acceleration as we had in the past.
MR. RICE: Thank you, Ilan. Thank you, Kristalina. I see Eric has his hand up there. Eric Martin of Bloomberg. Hey, Eric, come on in.
QUESTIONER: Yes, thank you very much, Gerry. And thank you, Managing Director. Good afternoon. I wanted to ask you knowing the importance to the IMF of the issue of gender equality and gender rights as something that has been underlined by the Fund, what is your reaction to the U.S. Supreme Court decision today on abortion rights in the U.S. and the economic impacts potentially that this could have in terms of healthcare costs, costs to employers, or any other kind of way that this could impact, you know, the U.S. economy and whether that’s something that the IMF will be studying in any way going forward? Thank you.
MS. GEORGIEVA: Thank you, Eric. I won’t comment on what is a domestic judicial decision. As your question indicated, our institutional view on women’s empowerment based on years of research is very clear. Gender equality is good economics. And we will continue to work on making sure that policy makers everywhere understand not only the side that is related to rights, but the side of this question that is squarely related to economic performance.
Just to give you one example. In our semi-cap statement, we recognize that demography is tightening the supply of labor and it is affecting labor force participation negatively. So, there have to be ways in which there could be more people coming into the labor force. And one of them is to make it more conducive and easy for women to participate.
MR. RICE: So, thank you very much, Kristalina. Let me turn to Heather Scott. Heather, are you able to turn on your camera or ask your question? Not hearing you, Heather. Let me turn to David, I see your hand raised there. Come on in, David, and we’ll try and get Heather up on the camera.
QUESTIONER: Okay. Hi. Thanks, Gerry. Madam Georgieva, obviously, the discussions with Secretary Yellen today, did you discuss at all, the U.S. Treasury’s kind of been pushing this idea of an oil price cap mechanism to try to reduce the revenues that Russia gets from its oil exports, particularly in Europe. This would, you know, I think one of the things they’re looking at is trying to do this through insurance restrictions for oil shipments, you know, above a certain amount, a certain price.
I’m just wondering if you think that the IMF is supportive of this kind of strategy and, you know, what were your concerns that you expressed to her about limiting the impact on developing countries, poor countries that are really suffering because of these high energy prices? Thanks.
MS. GEORGIEVA: Well, thank you for your question. It actually links a bit to what Andrea was asking, where we see this narrowing path headed and what are the biggest risks. And in, of course, high energy prices this is a risk for the U.S. economy and for the world economy as a whole, not only because it affects inflation, but because it has broader consequences for growth prospects.
When we look at the potential for some withdrawal of oil supply that, of course, could create and it does create further pressure on oil prices, we have been carefully assessing what could that result into. And we do see the need for a policy that would prevent further upward pressure on oil prices. And in that sense, you put the issue about developing countries, of course we are concerned that many developing countries find themselves, that are oil importers, find themselves in a very difficult situation. Ilan and I were in Barbados. We had firsthand impression of what it means for oil importers, especially small island economies, to have to deal with exuberant prices at the pump and in supporting their industries.
So, just to conclude. We did discuss with the Secretary the importance of pursuing policy action that would be conducive on keeping that upward pressure on oil prices as much as possible under control.
MR. RICE: Thank you very much, Kristalina. Let me read out Heather’s question because she’s having trouble joining us. Heather’s with AFP, as we know. And she is asking what would be the impact on the global economy of the U.S. slowdown as forecast? And what would be the impact, again, on the global economy if there is a recession in the U.S.?
MS. GEORGIEVA: Well, no doubt the U.S. is a key engine for growth in the world economy and when this engine slows down, that translates into impact well beyond. At this point, we are particularly watchful on the implications of tightening of financial conditions in the U.S., as well as exchange rate appreciation that is affecting emerging market and developing economies, especially those that have high level of dollar denominated debt.
We are running the numbers to see where we expect the U.S. economy to be this year, next year. And then on that basis, how that would impact growth prospects for the world. We are also very watchful on developments in China, another country that plays a significant role that has slowed down quite significantly, and to what extent policies that are now being proposed there to reduce that slowdown might bring a positive impact.
Overall, I want to say something that sometimes is left untold. And it is the importance to fight inflation today. This is a top priority for a reason because if we don’t secure price stability, it would be negative for growth and it would be negative for incomes. It would affect people. It would affect families dramatically. So, it is an important step to be taken. And success over time will be beneficial for global growth. But some pain to get to that success can be a necessary price to pay.
MR. RICE: Thank you, Kristalina. Ilan, would you like to complement? Then I’m going to ask Nigel to come in. Heather just sent a follow-up, Nigel. Do you feel that any recession in the U.S. would be short as some forecasters are saying? Maybe you can take that one, Nigel. Ilan, over to you.
MR. GOLDFAJN: I want to complement where Kristalina ended. Today, for the rest of the world, and developing economies as Kristalina mentioned, the small economies, the most important effect is inflation. And inflation is reducing incomes. Inflation is also threatening price stability going forward. So, the best policy for the rest of the world, for developing economies, is bringing inflation down.
And if this is what will generate, and if we have some deceleration at the end of the day for the rest of the economy, for developing economies, for especially small income economies, and the most poor, and most vulnerable, fighting inflation is the best strategy. So, the deceleration is a consequence of a good that would be delivered for everybody.
MR. RICE: Thank you, Ilan. Nigel?
MR. CHALK: So, let me answer the question on the type of recession. So, we’ve looked at a number of different scenarios and I think our best sense is — and it really depends a lot on the size of the shock that would drive the economy into recession — but our best sense is it would be a relatively short recession with unemployment rising but rising relatively modestly. And may look something like the recession we saw in the U.S. in the early part of the 2000s.
And I think the reason for that, as was discussed earlier, is U.S. balance sheets are strong, both corporate and household balance sheets. There’s a lot of savings sitting in the system that would help fuel demand. And the labor market is at historically tight levels. And so, all of those things would help support the economy. So, if it was hit by a negative shock, it should pass relatively quickly and have a relatively quick recovery afterwards.
MR. RICE: Thank you all. I see Maoling from Xinhua. I see Matthew up there in New York. Let’s take these questions and then we may have time for one more if someone wants to raise their hand. Maoling, please come in.
QUESTIONER: Thank you, Gerry, for taking my question. So, Managing Director, I wanted to ask about trade. You mentioned at the end of your remark that there are some benefits in rolling back the tariffs that were introduced over the past five years. I was wondering whether you could elaborate on that what specifically the benefits could be for the U.S. economy and also for its trading partners. Thank you.
MS. GEORGIEVA: Thank you very much for this question. It was one of the topics we indeed discussed with also with Secretary Yellen and it is covered in our Article IV. What we see is at a time of high inflation, any step that can be taken to bring prices down, even it is relatively marginal improvement, is a positive step. And we know that when there are tariffs, they are actually not helping in this fight against inflation.
This being said, we fully recognize that the last decades of open trade have led to some parts of the population being negatively impacted by redistribution of industries. And that has not been attended enough, which has led to significant public withdrawal from that support for us having an integrated economy. So, we first — and I would turn to Nigel, he can tell you a little bit more on our analysis — but first we do support the considerations the administration is giving to eliminating tariffs that have been put in place over the last five years because it would help in the fight against inflation although, again, I want to recognize it’s not a significant impact.
Second, we also strongly support domestic policies in the U.S. and elsewhere that are attentive to the unintended consequences of an integrated global economy and open trade. Much more focus should be given to who wins, but also, who loses. And compensatory policies must be in place for those that suffer negative consequences. Nigel, anything to add?
MR. CHALK: Yeah, I would just add that the analysis we’ve done on the team and I think it’s corroborated by a lot of other researchers is the tariffs that were introduced over the past five years really were borne by U.S. consumers. And so, taking them off, I think, at a time when U.S. consumers are being battered by high food and energy prices would actually be quite well targeted towards helping them.
MR. RICE: Well, thank you very much, Nigel. It looks like the last hand up, last man standing, Matthew. Matthew Lee up there in New York. Matthew, come on in please.
QUESTIONER: Thank you. Matthew Lee, Inner City Press. Thanks a lot for doing this. I noticed that the statement talked, you know, spoke about the Federal Reserve and kind of transparency in communications. So, I wanted to ask you. Many people seem to be surprised by the size of the rate increase recently. Can you speak a little bit more about what you think going forward the Federal Reserve should do on its communications?
And also, the administration here in the U.S. has asked the Fed and other agencies to take anti-trust much more seriously to look at the sign of large mergers. There’s some large bank mergers pending on which hearings have been scheduled. What do you see as a relationship between anti-trust enforcement and the economy? And what do you think of the administration’s — I understand you won’t get into purely domestic things — but anti-trust and the global economy at this time, generally? Thanks a lot.
MS. GEORGIEVA: Thank you. Thank you, Matthew. You have a great background. I don’t know where exactly you’re sitting, but we know you’re in New York. We can see that. Look, we in the — I’m going to ask Nigel to give you more on the technical aspects of your question. We recognize the need of more stepped-up approach from the Fed. In fact, our team has been recommending to prioritize fighting inflation and to take very decisive action. So, when the decision on the 75 bases points came, we cheered it. Can I say that, Nigel?
MR. CHALK: Yes.
MS. GEORGIEVA: And we did so because of the rapidly changing landscape on inflation in the United States, but also, globally.
Let me say we are in a very unusual place. And Nigel would comment a bit more. Because the factors that impact inflation are so multifaceted. Let me just take food prices. We have the war in Ukraine impacting supply. But we also have multiple cases of bad harvests because of weather events. And even before the war in Ukraine, there was hunger on the horizon in Sub-Saharan Africa. And this war means that the problem is much more severe. People are going to die.
And that food situation for this year may be similarly difficult if not more difficult next year. So, that is only one example of exogenous shocks that are built one upon the other and are creating this fairly serious inflationary spiral that has to be brought under control. And that’s what Ilan said. That is what I am saying. We need that if we want to restore growth and protect people’s incomes.
I’m going to ask Nigel to get a bit more in the details of your question. But thank you very much for asking it because what you’re doing is keeping the focus on what matters the most at this time. So, Nigel.
MR. CHALK: So, thank you. So, two parts of your question. The first one on communications. I think this last six or nine months has demonstrated first of all that the economy can move very, very quickly in the U.S., and that in times of uncertainty, having really good communications is extremely valuable. And so, we know that the Fed has been very proactive in signaling its policy actions. It has a number of ways to do that through minutes, through speeches, through its FOMC statements. We’ve made some suggestions on areas where it could be improved, and particularly given more guidance to people on scenarios, on forecasts of where the Fed most likely thinks the outcome would be that would complement its current communication tools.
And then on your second question on anti-trust. So, we have seen, and we’ve done a lot of work on the team actually over the past couple of years, there has been a significant increase in concentration among the corporate sector in the U.S. And that’s had all sorts of ramifications I think we’re still trying to sort through. We see it in labor markets. We see it in the way prices are formed. And we also see it, in particular, in the way monetary policy transmits to the U.S. economy.
So, I think there is a case to understand better how much this increased concentration of corporate sector has an effect. And I think insofar as this is a distortion, is creating mispricing, and overly large profits within the economy, there is a role for anti-trust legislation to examine that as well. Thank you.
MS. GEORGIEVA: And my apologies, Matthew. I didn’t pick up on your second question. I just second everything that Nigel said. It is a distortion and not helping the economy to provide a sound and stable price stability, as we say, for its growth.
MR. RICE: Thanks, Kristalina. I know Ilan would like to come in just with a last —
MS. GEORGIEVA: Yes.
MR. RICE: — brief word. Ilan?
MR. GOLDFAJN: On the Fed communication, as we are saying, we are in times of a lot of uncertainty, a lot of doubts whether we’re going to have more shocks, or whether inflation will be more persistent, or less persistent. In this moment, communication is essential.
And the principles here is, try to convey what will you be doing in moments of different scenarios. You can be more explicit or less explicit. But the more people know about the reaction factors, the more people know about what will happen, given the data dependent, will be essential. It will be essential not only for markets, but also for people in the U.S., how to react, how to go about their businesses. But also, to other countries, for emerging economies, for developing economies, they will appreciate having guidance regarding different reactions to different scenarios. And that was what the team is recommending now and has been recommending for some time.
MR. RICE: Thanks. Thanks, Ilan. Thanks, Nigel. Thank you, Kristalina. And thanks to all colleagues for joining us today and I hope you have access to all the documents you need. They’re on IMF.org. If you have a problem, contact Media Relations at IMF. Happy to help you. Stay safe and well, everyone. We look forward to seeing you again soon.
MS. GEORGIEVA: Thank you from us too. Thank you.
* * * * *
IMF Communications Department
PRESS OFFICER: Randa Elnagar
Phone: +1 202 623-7100Email: MEDIA@IMF.org