IMF again cuts U.S. 2022 growth forecast to 2.3% as consumer spending cools

The International Monetary Fund on Tuesday again cut its growth forecast for the United States to 2.3% for 2022 from 2.9% in late June, with officials citing recent downward date revisions to first quarter U.S. GDP output and consumer spending in May.

The Fund included the new forecasts in the full report of its annual assessment of the U.S. economy, which highlighted the challenges of high inflation and the steep Federal Reserve interest rate hikes needed to control prices.

The IMF said that U.S. inflation pressures are broad-based, with declining price growth in durable goods largely offset by acceleration of prices for shelter, healthcare and other services, along with rising food and energy prices.

“The policy priority must now be to expeditiously slow wage and price growth without precipitating a recession,” the IMF said in the Article IV staff report. “This will be a tricky task.”

The Fund said Fed monetary policy tightening should help bring down inflation to 1.9% by the fourth quarter of 2023, compared with a forecast of 6.6% for the fourth quarter of 2022. This will further slow U.S. growth, but the IMF still predicted the United States will avoid recession. It cut its 2023 U.S. real GDP growth forecast to 1.0% from 1.7% projected on June 24, based on data revisions that showed “significantly less momentum” in private consumption and spending of savings built up over the pandemic.

IMF Western Hemisphere Department economist Andrew Hodge said in a blog post that Fed rate hikes and less government spending will slow consumer spending growth “to around zero by early next year” easing supply strains. “Slowing demand will increase unemployment to around 5% by late 2023, which should decrease wages,” Hodge said.