On 12 July 2022 the IMF published a report following consultations with the US under Article IV of the IMF’s articles of agreement.

The US has recovered quickly from the economic shock caused by the pandemic although the recovery of demand, rising energy prices and global supply disruptions have increased inflation. The contraction of the economy during the pandemic was slowed but not halted by the fiscal stimulus measures in the American Rescue Plan passed in March 2021. The deficit is now declining rapidly but public debt is still much higher than its pre-pandemic levels and is projected to rise as a share of GDP over the medium term.

Owing to the surge in inflation, which present risks to the US and to the global economy, the policy priority must be to slow price growth without precipitating a recession. The US could usefully implement a medium-term strategy for fiscal deficit reduction, to bring down the level of public debt. Avoiding a recession will be challenging and there are additional difficulties arising from the Ukraine war, the continuing problems from the pandemic and supply-side constraints.

Although the IMF report welcomes the Infrastructure, Investment, and Jobs Act it emphasises the need to complete the reform agenda to restore the supply side of the economy and help to reduce inflation levels. The report therefore encourages the government to continue making the case for the social safety net and for tax and spending measures to promote participation in the labour force, investment and innovation.

The IMF report recommends that the trade restrictions and tariff increases introduced over the past five years should be rolled back. The US should work together with its trading partners to strengthen the rules-based multilateral trading system, which is built around the World Trade Organisation (WTO).

The report recommends further action to facilitate the transition to a low carbon economy and pursue the climate objectives. Further measures could include broad-based pricing of carbon and other pollutants and sectoral feebates (the use of fees and rebates to improve allocation of the costs of negative externalities). There could also be regulatory restraints on emissions.

Other climate measures should include the elimination of subsidies for fossil fuels and carbon-intensive agriculture. There should be a shift in public spending toward climate mitigation and adaptation. There should also be support for the groups who would bear the largest share of the burden cause by the required adjustments.