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The US economy is likely to slow in 2022 and 2023 but will "narrowly avoid a recession" as the Federal Reserve implements its rate-tightening plan to curb inflation, the International Monetary Fund said.
The Fed's plan of quickly getting its benchmark rate to 3.5% to 4% "should create an upfront tightening of financial conditions which will quickly bring inflation back to target," Managing Director Kristalina Georgieva told reporters following the release of the concluding statement on its article IV consultation, the IMF's assessment of countries' economic and financial developments following meetings with lawmakers and public officials.
Based on the policy path outlined at the June Federal Open Market Committee meeting, and an expected reduction in the fiscal deficit, the IMF expects the US economy will slow, Georgieva said.
Georgieva at the press conference on Friday went on to say there are "very significant" downside risks this year and especially in 2023.
If there ultimately is a recession, it would likely be relatively short, said Nigel Chalk, deputy director in the IMF's Western Hemisphere department.