The International Monetary Fund (IMF) has urged the United States to address its rising debt levels, even as it commended the country's robust economic growth and progress in managing inflation. In a closing statement from its "Article IV" review of U.S. economic policies, the IMF emphasized the need for fiscal reforms to mitigate risks to both the U.S. and global economies.
The IMF slightly revised its 2024 U.S. GDP growth forecast to 2.6%, down from 2.7% in its April World Economic Outlook, while maintaining its 2025 forecast at 1.9%. The organization praised the U.S. economy as "robust, dynamic and adaptable to changing global conditions," noting that activity and employment continue to exceed expectations. Furthermore, the IMF projected that U.S. inflation would return to the Federal Reserve's 2% target by mid-2025, ahead of the Fed's own 2026 timeline.
IMF Managing Director Kristalina Georgieva highlighted the positive trajectory of inflation, attributing it to diminishing consumer spending and a cooling labor market. "The current trajectory of inflation indicates a quicker return to target," Georgieva told reporters.
However, the IMF expressed concern over high deficits and mounting debt, warning that these could lead to increased fiscal financing costs and challenges in managing maturing obligations. The Fund's projections suggest that the U.S. debt-to-GDP ratio could reach a concerning 140% by the end of the decade if current trends continue. This measure includes obligations related to Social Security and Medicare.
"High deficits and debt create a growing risk to the U.S. and global economy," the IMF stated. The Fund recommended progressive income tax increases, affecting not only the wealthiest Americans but also households earning less than $400,000 annually. It also suggested reforms to entitlement programs and raising the eligibility threshold for the Earned Income Tax Credit for childless workers.
Georgieva emphasized the importance of fiscal consolidation during economic strength. "It is in good times where you can do more to prepare yourself for risks in the future," she said.
The IMF also criticized escalating U.S. tariffs and trade barriers, noting that these policies could distort investment flows and undermine the global trading system. The Fund advised Washington to resolve trade disputes through negotiations and to strengthen the World Trade Organization.
Despite these recommendations, the U.S. Treasury's response focused on the positive performance of the U.S. economy. In discussions with Georgieva, U.S. Treasury Secretary Janet Yellen reiterated the importance of "frank and thorough assessments" of member economies. The Treasury statement highlighted the "remarkable performance of the U.S. economy over the past few years" but did not directly address the IMF's concerns about deficits and trade policies.
The IMF's critique extends to financial stability, citing insufficient progress in addressing vulnerabilities exposed by bank failures in 2023. The Fund recommended the full implementation of Basel III proposals, an international regulatory framework established post-2008 financial crisis.
Recent data suggests the U.S. economy is on track for a soft landing, despite signs of a slowdown. Unemployment has inched higher, retail sales are decelerating, and new-home sales have declined. Consumer confidence has also dipped, reflecting a more muted outlook for business conditions, the job market, and incomes.
The IMF's call for fiscal prudence comes as the nonpartisan Congressional Budget Office recently raised its estimate for the U.S. budget deficit by 27% to nearly $1.92 trillion for the current year. The IMF forecasts that under current policies, general government debt could exceed 140% of GDP by 2032.
Georgieva maintained that U.S. debt remains sustainable but urged for measures to bring it down. "Debt levels have gone up, deficit has gone up. Yes, you can carry it," she said. "But if you can bring it down, you would have an even stronger path for the future."
