Breitbart Business Digest: IMF Sees More U.S. Growth This Year Than The Fed Does

The IMF Sees Bank Turmoil Cutting U.S. Economic Growth

The International Monetary Fund said on Tuesday that it expects bank lending to contract in the U.S. this year, slowing economic growth.

The IMF said in its report on “Global Financial Stability” that it expects U.S. bank lending capacity to fall by one percent this year. The reduced credit availability is seen as shrinking U.S. economic growth by 0.44 percent in 2023. The IMF’s economists see U.S. growth falling to 1.6 percent this year and 1.1 percent in 2024.

Interestingly, the 2023 IMF projection is above the median projection from Fed officials of 0.4 percent for this year and slightly below the median Fed projection of 1.2 percent for 2024.

Global growth is seen as falling to 2.8 percent this year, down from 3.0 percent last year, and then slightly recovering to three percent next year, the IMF said in its April update to its “World Economic Outlook.” The output of advanced economies is seen as growing just 1.3 percent this year and 1.4 percent next year. The Eurozone’s will grow just 0.8 percent in 2023 and 1.4 percent in 2024, the IMF’s economists forecast.

Both Germany and the U.K. are forecast to contract this year and then to grow next year at 1.1 percent and 1.0 percent respectively.

“A silver lining is that the banking turmoil will help slow aggregate activity as banks curtail lending in the face of rising funding costs and of the need to act more prudently. In and of itself, this should partially mitigate the need for further monetary policy tightening. But any expectation that central banks will abandon the fight against inflation would have the opposite effect: lowering yields, supporting activity beyond what is warranted, and complicating the task of central banks,” the IMF said.

The reopening of China’s economy after the pandemic lockdowns is seen as boosting growth from last year’s three percent to 5.2 percent in 2023 and 4.5 percent in 2024. India’s growth is seen as falling to 5.9 percent in 2023, down from 6.8 percent last year, and then rebounding to 6.3 percent the following year.

Inflation in the U.S. is expected by the IMF to average 4.5 percent this year and to fall to an average of 2.3 percent in 2024. Notably, this is slightly more optimistic that the median projection of Federal Reserve officials. At the last Federal Open Market Committee meeting, the median projection was for inflation to fall to 2.5 percent by the end of 2024, which implies a higher average inflation for the year.

The IMF also expects lower unemployment than the Fed this year and higher next year. The median projection from Fed officials is for unemployment to rise to 4.5 percent by year-end 2023 and 4.6 percent the following year. The IMF sees unemployment at just 3.8 percent this year and jumping to 4.9 percent next year. The Department of Labor said last week that the unemployment rate fell to 3.5 percent in March.

Consumer Price Index on Deck

The Department of Labor will release its monthly consumer inflation report on Wednesday. The consensus forecast is for inflation, as measured by the consumer price index (CPI), to cool slightly from 0.4 percent month-0ver-month in February to 0.3 percent. On a 12-month basis, inflation is seen as falling to 5.2 percent, in part reflecting the spike in oil prices that followed Russia’s invasion of Ukraine last year. Core prices are seen as rising 0.4 percent for the month, a deceleration from February’s 0.5 percent, and 5.4 percent compared with a year ago.

Note that the Cleveland Fed’s inflation nowcast has CPI rising 0.3 percent for the month and 5.22 percent for the year, right in line with the consensus view. Core CPI is nowcast at 0.45 percent month-over-month and 5.64 percent year-over-year, both above the forecast. We think this implies at least some risk of an upside surprise in tomorrow’s data.

The Fed will release the minutes from its last meeting on Wednesday. Fed watchers will study them closely for signals about the central bankers’ expectations around credit tightening stemming from the post-Silicon Valley Bank collapse.