Recently, the International Monetary Fund (IMF) released its preliminary findings regarding its economic outlook for the U.S.¹ The IMF notes that the unprecedented fiscal and monetary support, combined with the receding COVID-19 case numbers, should provide a substantial boost to economic activity in the coming months. It further states that savings will be drawn down, demand will return for in-person services, and depleted inventories will be rebuilt. U.S. economic growth in 2021 is expected to be around 7 percent, which is the fastest pace in a generation. And the U.S. economy is expected to grow 5 percent in 2022.

The study also finds that there is enough labor market slack to dampen underlying wage and price pressures. However, inflation trends will be altered in the coming months by significant, transitory movements in relative prices which could lead core personal consumption expenditure (PCE) inflation to temporarily peak later in the year to around 4 percent. The IMF anticipates that once the temporary price realignments have passed through the system, PCE inflation is forecasted at around 2.5 percent by 2022.

The IMF finds the principal risk to the U.S. economy continues to emanate from the pandemic. New variants of the virus have appeared, and there has been a shift in hospitalization and mortality to younger Americans. While vaccines are widely available, individual decisions on whether to take the vaccine have become a binding constraint. The U.S. also has an important role to play in helping other countries contend with the pandemic. International assistance in the form of vaccines, medical supplies, and public health expertise will benefit the U.S. and lessen the risk emanating from COVID-19.

Another risk to the IMF’s outlook is inflation. Although the IMF believes that a surge in inflation in the U.S. in not a likely outcome, it does represent a risk to both the U.S. economic recovery and to global prospects. Also, a slower rebound in labor force participation – due to public health concerns, retirements, incentive effects from unemployment benefits, or delays in opening schools and childcare – could create a larger mismatch in the labor market and push wages and prices higher. Supply chain disruptions could also prove to be more persistent.

The IMF also notes that, as the pandemic effects recede, policymakers will need to understand ongoing transitions that include: a pandemic recovery that likely creates lasting shifts in consumer preferences; digitization and other evolving technologies that will change both production and consumption in different ways; and an aging U.S. population.
Finally, the IMF notes that the longstanding flexibility and innovativeness of the U.S. puts it in a good place to manage the aforementioned shifts and transitions. However, the U.S. should take care to ensure that the multi-faceted changes do not increase income polarization and that an economic policy be developed that will support rising living standards for all Americans.

¹“United States of America Concluding Statement of the 2021 Article IV Mission,” International Monetary Fund, July 1, 2021, https://www.imf.org/en/News/Articles/2021/07/01/mcs070121-united-states-of-america-concluding-statement-of-the-2021-article-iv-mission (Accessed July 6, 2021).