WASHINGTON—The International Monetary Fund on Tuesday warned that avoiding recession in the United States will be “increasingly challenging” as it again cut its 2022 U.S. growth forecast to 2.3 percent from 2.9 percent in late June as recent data showed weakening consumer spending.
The Fund also cut its 2023 real GDP growth forecast to 1.0 percent from 1.7 percent on June 24, when it met with U.S. officials for an annual assessment of U.S. economic policies.
The final report released on Friday was revised to reflect downward revisions to U.S. first quarter GDP and weak consumer spending data in May.
But it continued to highlight the challenges of high inflation and the steep Federal Reserve interest rate hikes needed to control prices.
IMF executive directors said in a statement that a broad-based inflation surge was “posting systemic risks to both the United States and the global economy.”
“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 percent by the fourth quarter of 2023, compared with a forecast of 6.6 percent for the fourth quarter of 2022.
This will further slow U.S. growth, but the IMF still predicted the United States will avoid recession.
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 percent by late 2023, which should decrease wages,” Hodge said.
