‘US economy will narrowly avoid recession in 2022 and 2023’, says IMF
Virendra Pandit
New Delhi: Amid uncertainties in the global economy because of the after-effects of Covid-19 and the Russia-Ukraine war, the International Monetary Fund (IMF) has said the American economy will narrowly avoid recession this year and the next as the US Federal Reserve (Fed) implements its rate-tightening plan to curb inflation.
“We know that there is a narrowing path to avoiding a recession in the US,” IMF’s Managing Director Kristalina Georgieva said on Friday. “We also have to recognize the uncertainty of the current situation,” the media reports quoted her as saying.
“The policy priority now must be to expeditiously slow wage and price growth without precipitating a recession,” the IMF said in a statement. “This will be a tricky task,” as global supply constraints and domestic labor shortages are likely to persist, and the war in Ukraine creates additional uncertainties, it said.
The US Fed’s plan of quickly getting its benchmark rate to 3.5 to 4 percent “should create an upfront tightening of financial conditions which will quickly bring inflation back to target,” Georgieva told reporters after the IMF’s assessment of different countries’ economic and financial developments.
The IMF, which is looking at a slowing US economy, has “also just concluded a very useful set of discussions” with Treasury Secretary Janet Yellen and Fed Chair Jerome Powell, she said.
There are “very significant” downside risks this year and especially in 2023, Georgieva said.
If there ultimately is a recession, it would likely be relatively short, said Nigel Chalk, Deputy Director in the IMF’s Western Hemisphere Department.
The US policymakers raised interest rates by 75 basis points last week, their single-biggest move since 1994, and the Fed chief signaled another increase either of 75 or 50 basis points for July.
Powell and his colleagues pivoted aggressively to fight the hottest inflation in 40 years amid criticism they left monetary policy too easy for too long as the economy recovered from Covid-19.
Since Russia’s invasion of Ukraine in February, global oil prices have risen dramatically, exacerbating inflation stoked by pandemic-related supply chain disruptions and, especially in the US, the fiscal response to Covid-19.
Georgieva said the IMF sees the need for a policy to prevent further upward pressure on oil prices, which she discussed with Yellen this week.
The IMF has supported the Biden administration’s Build-Back-Better agenda, saying it would help release supply-side constraints, improve the safety net, support labor force participation, and incentivize investment and innovation.
