The International Monetary Fund (IMF) delivered a mixed message on the U.S. economy in its latest World Economic Outlook report.
While the Washington-based institution raised its forecast for U.S. growth in 2024, citing strong consumer spending and robust business investment, it also issued a stark warning about the country's fiscal trajectory.
According to the IMF, the U.S. public debt will continue to surge, with significant long-term risks posed by persistent deficits and rising debt-servicing costs.
Stronger Growth, But Slower Pace Expected Ahead
The IMF revised its 2024 growth outlook for the U.S. upward to 2.8%, a 0.2 percentage point increase from its July estimate.
The report credits resilient consumer spending, buoyed by real wage gains, particularly for lower-income households and solid nonresidential investment for the stronger forecast.
The Federal Reserve's monetary policy, which pivoted towards easing in September 2024 with a 50 basis point cut, was another crucial factor in the updated U.S. economic outlook.
The IMF also revised its 2025 forecast slightly upward, projecting 2.2% growth, a 0.3 percentage point increase from previous estimates.
Despite these upward revisions, the pace of economic expansion is anticipated to slow due to less government spending and a softening job market, which could curb consumer demand.
Fed To Cut Interest Rates Further As Inflation Slows
On the inflation front, the IMF projects U.S. inflation to average 3% in 2024, with a year-end target of 2.3%. By 2025, inflation is expected to decline further, averaging 1.9%.
The report highlights that inflationary pressures are easing, but there are still significant downside risks to the global economy. "The global economy is at the last mile of disinflation," the IMF highlights, while warning that disinflation efforts could be more costly than anticipated if inflation persists longer than expected.
The Fed's rate-cutting cycle is expected to continue, with the federal funds rate projected to return to its long-term equilibrium of 2.9% by the third quarter of 2026 - nearly a year earlier than previously expected.
U.S. Fiscal Challenges: 'Delay Is Costly'
While the growth story for the U.S. economy is largely positive, the IMF's warnings on fiscal policy are harder to ignore.
The U.S. fiscal deficit remains a significant concern, projected at 7.6% of GDP in 2024 and 7.3% in 2025. By 2029, the deficit is expected to narrow slightly to 6%, but much of this will be driven by rising interest rate expenses, which now constitute a significant portion of government outlays.
Government debt is set to climb further, with the IMF forecasting gross government debt to reach 121% of GDP in 2024, 124% in 2025, and a staggering 131.7% by 2029.
These projections have led the IMF to issue a stark warning: "Under current policies, the U.S. public debt is not stabilized."
Furthermore, the IMF added, "Delaying is costly: in countries where debt is projected to increase further - such as Brazil, France, Italy, South Africa, the U.K. and the U.S. - delaying action will make the required adjustment even larger."
