IMF Raises US Growth Rate to 1.7%... "Inflation to Reach 2% Range Next Year"

Call to Raise Default Risk Exposure Limit

The International Monetary Fund (IMF) raised its forecast for the United States' economic growth rate this year from 1.6% to 1.7%, an increase of 0.1 percentage points. Regarding concerns over a potential default due to the debt ceiling negotiations, the IMF urged a swift increase.

On the 26th (local time), the IMF stated in a press release that it expects the U.S. economic growth rate to slow to 1.0% next year. The unemployment rate is forecasted to remain at a low level of 3.8% this year, but is expected to rise to 4.4% by the end of next year, coinciding with the slowdown in growth.

The IMF evaluated that "the U.S. economy has shown resilience despite financial and fiscal tightening measures implemented last year," adding that "consumer demand remained robust and the labor market is healthy." However, it also pointed out that "strong demand and a solid labor market are a double-edged sword as they continue to fuel inflation," warning that "measures to control prices may lead to slower economic growth and reduced employment."

[Image source=Reuters Yonhap News]

Regarding the U.S. debt ceiling issue, the IMF emphasized that "in an already tense environment, the brinkmanship between the White House and Congress over the debt ceiling poses an entirely avoidable risk to both the U.S. and global economies," and stressed that "to avoid worsening downside risks, the debt ceiling must be raised immediately."

Kristalina Georgieva, IMF Managing Director, predicted at a press conference that the U.S. inflation rate will reach the Federal Reserve's medium-term target of 2% next year.

Georgieva stated, "To achieve the 2% inflation target, a tight monetary policy must be maintained for an extended period," and added, "interest rates are expected to remain at 5.25% to 5.5% through the end of 2024."

Contrary to market expectations, the IMF foresees additional interest rate hikes continuing for a considerable time. The IMF noted, "A significant portion of household and corporate debt is contracted at long-term fixed rates, making household consumption and corporate investment less sensitive to interest rates than in the past," warning that "this increases the risk that the Fed will need to raise policy rates further to bring inflation back to the 2% range."