IMF bullish on US economy, but warns of trade war wildcard

By U.S. EconomyFOXBusiness

Jerome Powell says the Fed is monitoring the impact of trade issues on the economy

FOX Business’ Jackie DeAngelis on Federal Reserve Chairman Jerome Powell's claim that the central bank is closely monitoring the impact of trade issues on the economy.

The International Monetary Fund on Thursday raised its economic growth assessment for the U.S. this year, but warned that escalating global trade disputes could pose a threat to that outlook.

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In an overarching review of the U.S. economy, the IMF said it anticipates the economy to grow by 2.6 percent this year (a 0.3 percent increase from the initial growth forecast) and by 2 percent in 2020, boosted by tax cuts and an increase in both defense and non-defense spending. As the effects of the 2017 Tax Cuts and Jobs Act -- which injected a fiscal stimulus into the economy -- begin to fade, the IMF said it anticipates growth to return to about 1.75 percent.

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However, the IMF noted that the U.S. economy is currently exposed to multiple vulnerabilities, chief among them the tariffs imposed by the Trump administration on multiple countries across the world in hopes of overhauling the global trading system.

“That is the risk we are most concerned about for the U.S. economy,” Nigel Chalk, the IMF’s mission chief for the U.S., said during a news conference on Thursday.

The report urged the U.S. to reconsider tariffs, noting that the bilateral trade deficit between the U.S. and China is likely to remain and instead pushed for fiscal adjustment and supply-side reforms to improve productivity and overall competitiveness.

Over the past year, the U.S. has hiked tariffs on hundreds of Chinese goods worth more than $200 billion, and recently threatened to slap a 5 percent tariffs on all goods imported from Mexico.

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“Rising import tariffs and other steps taken by the administration are undermining the global trading system, increasing restrictions on trade in goods and services, and catalyzing a cycle of retaliatory trade responses,” the report said.

Other threats to the economy also exist, the IMF noted. That includes the U.S. public debt, which the IMF said is on an "unsustainable path," high corporate leverage and weakening underwriting standards; and the widening inequality gap in the U.S.

"There is a lot of room for improvement," IMF Director Christine Lagarde said at the press conference.

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