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The staff of the International Monetary Fund Thursday forecast the U.S. economy to grow by 7.0% in 2021 and 4.9% in 2022 before falling under 2.0%, as core PCE inflation (Q4/Q4) is seen spiking to 3.7% in 2021 and remaining elevated at 2.6% in 2023, despite seeing the Federal Reserve hike interest rates once in 2022 and two more times in 2023.
After concluding a regular Article IV review of the world's largest economy, the IMF staff forecasts - which are based upon an assumption that the American Jobs Plan and American Families Plan will be legislated during the course of 2021 with a size and composition that is similar to that proposed by the administration - notes the likelihood that fiscal support will help inflation gather enough momentum "to sustainably exceed 2%" as inflation expectations are expected to remain well-anchored. The IMF forecasts expect more inflation than the Fed's released in June.
"In the coming months, the ongoing rapid pace of recovery and expectations of additional fiscal support will necessitate a shift in monetary policy," the note said. "Presuming staff's baseline outlook and fiscal policy assumptions are realized, policy rates would likely need to start rising in late-2022 or early-2023 (with asset purchases starting to be scaled back in the first half of 2022)." MNI has reported that simmering price pressures could force the Fed to bring forward QE taper and interest rate hikes.
Source: IMF staff forecasts
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.