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Economic Policy · Fiscal Consolidation · IMF · Tariffs
The International Monetary Fund (IMF) has reviewed the U.S. economy and suggests an alternative policy mix to achieve the Trump administration's goals without negative global repercussions.
The IMF recommends replacing tariffs with a destination-based consumption tax and moving towards a skills-based immigration system. While acknowledging the administration's concern about trade deficits, the IMF noted that tariffs have a negative supply effect and contribute to inflation.
The fund projects higher tariffs will modestly narrow the trade deficit in the near term but increase inflation and reduce output. The IMF supports the Federal Reserve's decision to ease monetary policy in 2025 and forecasts the federal-funds rate to reach 3.25%-3.50% by the end of 2026, aiming for full employment and 2% inflation by early 2027.
The report also emphasizes the importance of the Fed's autonomy and calls for fiscal consolidation, projecting U.S. debt to reach 140% of GDP by 2031 under current policies. The IMF expects U.S. economic growth to be around 2.4% in 2026 and 2027.
