© 2016 International Monetary Fund

IMF Country Report No. 16/226

UNITED STATES

2016 ARTICLE IV CONSULTATION—PRESS RELEASE; 

AND STAFF REPORT 

Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions 

with members, usually every year. In the context of the 2016 Article IV consultation with 

the United States, the following documents have been released and are included in this 

package:

 A Press Release summarizing the views of the Executive Board as expressed during its

July, 8, 2016 consideration of the staff report that concluded the Article IV

consultation with the United States.

 The Staff Report prepared by a staff team of the IMF for the Executive Board’s

consideration on July 8, 2016, following discussions that ended on June 20, 2016, with

the officials of the United States on economic developments and policies. Based on

information available at the time of these discussions, the staff report was completed

on June 24, 2016.

 An Informational Annex prepared by the IMF staff.

 A Staff Statement updating information on recent developments.

The IMF’s transparency policy allows for the deletion of market-sensitive information and 

premature disclosure of the authorities’ policy intentions in published staff reports and 

other documents.

Copies of this report are available to the public from

International Monetary Fund  Publication Services

PO Box 92780  Washington, D.C. 20090

Telephone: (202) 623-7430  Fax: (202) 623-7201

E-mail: publications@imf.org Web: http://www.imf.org

Price: $18.00 per printed copy

International Monetary Fund

Washington, D.C.

July 2016
Press Release No. 16/332

FOR IMMEDIATE RELEASE

July 12, 2016

IMF Executive Board Concludes Article IV Consultation with United States

On July 8, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the 

Article IV consultation with the United States.

1

The U.S. is in its seventh consecutive year of expansion. The unemployment rate has fallen to 

4.9 percent and household net worth is close to pre-crisis peaks. Nonetheless, the economy has 

gone through a temporary growth dip in the last two quarters. Lower oil prices led to a further 

contraction in energy sector investment and a strong dollar and weak global demand have 

weighed on net exports. On the upside, real household disposable income is growing at 

3 percent, the housing market is growing at a healthy clip, and the current fiscal and monetary 

policy mix is supporting the economy. 

With activity indicators for the second quarter of this year rebounding, the economy is expected 

to grow at 2.2 percent and 2.5 percent in 2016 and 2017, which is above potential. Over this 

period, the remaining labor market gap should close before growth begins to steadily decline to 

2 percent over the medium term. Inflation has remained subdued and wage indicators on the 

whole have shown only modest acceleration. As the output gap closes, personal consumer 

expenditure (PCE) inflation is expected to slowly and moderately rise above 2 percent in 2017–

19, before returning to the Federal Reserve’s medium-term target of 2 percent.

Risks to the growth outlook are tilted to the downside. Given uncertainty surrounding the 

implications of the U.K. referendum, continued financial market volatility or a further 

appreciation of the U.S. dollar are possible. There are, however, upside risks from oil—both in 

terms of a delayed effect on consumption and a lessening drag from oil-related investment. A 

more complex and harmful downside risk is the possibility that potential growth rate is lower 

than estimated and a smaller output gap than previously estimated. If true, this would mean the 

U.S. economy could soon bump up against capacity constraints that would slow growth and 

generate domestic inflationary pressures with negative global spillovers.

Over the longer term and despite the ongoing expansion, the U.S. faces a confluence of forces 

 

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually 

every year. A staff team visits the country, collects economic and financial information, and discusses with officials 

the country's economic developments and policies. On return to headquarters, the staff prepares a report, which 

forms the basis for discussion by the Executive Board.

International Monetary Fund

700 19th Street, NW

Washington, D. C. 20431 USA
2

that may weigh on the prospects for continued gains in economic well being. A rising share of 

the US labor force is shifting into retirement, basic infrastructure is aging, productivity gains are 

scanty, and labor markets and businesses appear less adept at reallocating human and physical 

capital. These growing headwinds are overlaid by pernicious secular trends in income: labor’s 

share of income is around 5 percent lower today than it was 15 years ago, the middle class has 

shrunk to its smallest size in the last 30 years, the income and wealth distribution are 

increasingly polarized, and poverty has risen. If left unchecked, these forces will continue to drag 

down both potential and actual growth, diminish gains in living standards, and worsen poverty. 

The consultation focused on the medium-term challenges of an increasingly polarized income 

distribution, high levels of poverty, falling labor force participation, and weak productivity 

growth, and policies to combat these trends. 

Executive Board Assessment2

Executive Directors welcomed the continued recovery of the U.S. economy, on the back of 

strong fundamentals and supportive macroeconomic policies. Directors noted that, while the 

outlook remains broadly favorable, there are important downside risks and uncertainties, in 

particular slower potential growth, a strengthening of the U.S. dollar further away from levels 

justified by medium-term fundamentals, and sustained investor risk aversion following the 

outcome of the referendum in the United Kingdom. Meanwhile, longstanding issues on the 

supply side continue to weigh on economic prospects, including low productivity growth, falling 

labor force participation, and rising poverty and wealth inequality.

Directors agreed that the pace of interest rate normalization should remain data-dependent, 

proceeding cautiously along a gradual upward path. While there may be some merits in 

accepting a temporary overshooting of the medium-term inflation target until the economic 

expansion is solidly established, many Directors were concerned over the risks of de-anchoring 

inflation expectations and eroding monetary policy credibility. Directors welcomed the 

authorities’ commitment to monitor closely economic and financial developments, both domestic 

and global, and their implications for the Federal Reserve’s objectives of maximum employment 

and price stability. They also underscored the importance of maintaining clear, effective 

communication of the approach to interest rate adjustment.

Directors noted that near-term fiscal policy remains appropriately geared toward supporting 

growth and job creation. However, lasting institutional solutions are still needed to enhance the 

budget process and minimize fiscal uncertainties. Directors also highlighted the urgency of 

addressing the challenges posed by demographic trends, entitlement spending, and deteriorating 

infrastructure. In this context, they saw value in calibrating a credible medium-term 

consolidation plan to help guide the path of fiscal policy toward debt sustainability.

 

2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of 

Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers 

used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.
3

Directors stressed the need to take a broad range of measures to tackle longer-term challenges. 

Priorities include boosting federal infrastructure spending; further reforming the health care and 

pension systems; and reaching agreement on skill-based immigration reform. Directors called for 

concerted efforts to advance pro-poor policies, particularly expanding tax credits to low-income 

households, raising the federal minimum wage, and expanding paid-family leave and childcare 

assistance. Complementary measures to boost long-term growth include a comprehensive reform 

of the U.S. corporate income taxation, and further progress on trade integration.

Directors noted that recent regulatory reforms and improved capital positions have strengthened 

the U.S. banking system. Nevertheless, there remain pockets of vulnerabilities that warrant 

continued vigilance, particularly in the asset management and insurance industries, although at 

the current juncture risks are unlikely to be systemic. To preserve hard-won gains on financial

stability, Directors called on the authorities to continue implementing the recommendations of 

the 2015 Financial Sector Assessment Program. It will be particularly important to complete the 

regulatory reforms under the Dodd-Frank Act. Directors also recommended close monitoring and 

placing the insurance sector under consolidated national regulation and supervision. They 

supported efforts to improve data collection and reporting in the nonbank sector, strengthen 

requirements on beneficial ownership, and maintain dialogue and support capacity building in 

countries affected by the withdrawal of correspondent banking relationships.

 
4

United States: Selected Economic Indicators 1/

(percentage change from previous period, unless otherwise indicated)

Projections

2015 2016 2017 2018 2019 2020 2021

National production and income

Real GDP 2.4 2.2 2.5 2.3 2.0 1.9 2.0

Net exports 2/ -0.6 -0.3 -0.5 -0.3 -0.2 -0.2 -0.1

Total domestic demand 3.0 2.4 2.9 2.5 2.2 1.9 2.0

Final domestic demand 2.8 2.5 2.8 2.5 2.2 2.0 2.0

Private final consumption 3.1 2.7 2.7 2.3 2.0 2.0 2.0

Public consumption expenditure 0.4 1.2 1.4 1.4 1.5 1.0 1.3

Gross fixed domestic investment 3.7 2.4 4.3 3.8 3.1 2.5 2.3

Private fixed investment 4.0 2.5 5.0 4.2 3.1 2.3 2.2

Equipment and software 3.1 0.5 4.4 3.8 3.1 2.4 2.4

Intellectual property products 5.7 2.0 4.1 3.8 3.1 2.4 2.0

Nonresidential structures -1.5 -1.9 4.2 3.4 2.2 1.8 2.2

Residential structures 8.9 10.0 7.3 5.9 3.7 2.4 2.0

Public fixed investment 2.3 2.2 1.3 1.7 3.1 3.8 3.1

Change in private inventories 2/ 0.2 0.0 0.1 0.1 0.0 0.0 0.0

Nominal GDP 3.5 3.2 4.4 4.6 4.2 4.0 4.2

Personal saving rate (% of disposable income) 5.1 5.4 5.1 4.7 4.4 4.5 4.6

Private investment rate (% of GDP) 16.8 16.7 17.1 17.3 17.3 17.3 17.4

Unemployment and potential output

Unemployment rate 5.3 4.9 4.8 4.6 4.7 4.9 5.1

Labor force participation rate 62.6 62.8 62.9 62.7 62.5 62.3 62.1

Potential GDP 1.8 1.9 1.9 1.9 2.0 2.0 2.0

Output gap (% of potential GDP) -1.1 -0.8 -0.3 0.2 0.2 0.1 0.0

Inflation

CPI inflation (q4/q4) 0.4 1.1 2.5 2.6 2.4 2.4 2.3

Core CPI Inflation (q4/q4) 2.0 2.2 2.4 2.5 2.4 2.4 2.3

PCE Inflation (q4/q4) 0.5 1.0 2.2 2.3 2.1 2.1 2.0

Core PCE Inflation (q4/q4) 1.4 1.8 2.1 2.2 2.1 2.1 2.0

GDP deflator 1.0 1.0 1.8 2.2 2.2 2.1 2.2

Government finances

Federal government (budget, fiscal years)

Federal balance (% of GDP) -2.6 -3.0 -2.8 -2.5 -3.0 -3.2 -3.4

Debt held by the public (% of GDP) 73.6 76.0 76.0 75.6 75.9 76.4 77.0

General government (GFSM 2001, calendar years)

Net lending (% of GDP) -3.4 -3.8 -3.6 -3.4 -3.7 -3.7 -3.9

Primary structural balance (% of potential GDP) -1.0 -1.6 -1.5 -1.4 -1.6 -1.5 -1.5

Gross debt (% of GDP) 105.7 107.9 107.8 107.4 107.5 107.7 107.8

Interest rates (percent)

Fed funds rate 0.1 0.5 1.0 1.8 2.6 2.9 2.9

Three-month Treasury bill rate 0.1 0.3 0.8 1.6 2.4 2.7 2.7

Ten-year government bond rate 2.1 1.9 2.2 2.8 3.1 3.3 3.3

Balance of payments

Current account balance (% of GDP) -2.6 -2.9 -3.5 -3.8 -4.0 -4.0 -4.1

Merchandise trade balance (% of GDP) -4.2 -4.3 -4.6 -4.7 -4.8 -4.8 -5.0

Export volume (NIPA basis, goods) -0.2 1.2 5.8 6.1 5.3 5.1 3.9

Import volume (NIPA basis, goods) 4.8 3.2 8.2 6.4 5.6 5.6 5.1

Net international investment position (% of GDP) -41.0 -44.2 -47.9 -51.7 -55.8 -59.4 -63.0

Saving and investment (% of GDP)

Gross national saving 18.8 17.6 16.9 16.8 16.7 16.7 16.7

General government -1.1 -1.3 -1.1 -0.9 -1.1 -1.1 -1.2

Private 19.9 18.9 18.0 17.8 17.8 17.9 17.9

Personal 3.8 4.1 3.8 3.5 3.3 3.4 3.4

Business 16.1 14.8 14.2 14.2 14.5 14.5 14.5

Gross domestic investment 20.2 20.1 20.4 20.6 20.7 20.7 20.8

Private 16.8 16.7 17.1 17.3 17.3 17.3 17.4

Public 3.4 3.4 3.3 3.3 3.3 3.4 3.4

Sources: BEA; BLS; FRB; Haver Analytics; and IMF staff estimates

1/ Components may not sum to totals due to rounding

2/ Contribution to real GDP growth, percentage points
UNITED STATES

UNITED STATES

STAFF REPORT FOR THE 2016 ARTICLE IV CONSULTATION

Backdrop and theme for the consultation. The United States economy is, overall, in 

good shape. A total of 2.4 million new jobs were created over the past year and 

unemployment has fallen to 4.7 percent, its lowest level since the eve of the “Great 

Recession.” Inflation remains contained, and the U.S. economy has repeatedly 

demonstrated its resilience in the face of financial market volatility, a strengthening dollar, 

and subdued global demand. Despite these important achievements, the U.S. faces 

potentially significant longer-term challenges to strong and sustained growth. Concerted 

policy actions are warranted, sooner rather than later. The 2016 Article IV Consultation 

explores these policy challenges, focusing on the causes and consequences of falling labor 

force participation, an increasingly polarized income distribution, high levels of poverty, 

and weak productivity. Finding solutions to mitigate these secular trends will be key to the 

health of the global economy given the importance of the U.S. and the multiple channels 

for interlinkages and spillovers. The main policy messages underscore the range of actions 

needed to alleviate these long-running supply-side issues.

Policies to bolster growth and tackle poverty. In recent years, a divided political system 

has obstructed progress in tackling the longstanding supply-side issues facing the U.S. 

economy. It will be important, therefore, to build a broad consensus around reforms that 

will increase state and federal infrastructure investments; institute a comprehensive, skillsbased immigration reform; further expand the Earned Income Tax Credit and raise the 

federal minimum wage; upgrade social programs for the nonworking poor; deepen and 

improve family-friendly benefits; and comprehensively reform the corporate income tax. 

Monetary policy. The Federal Reserve should remain data dependent. There is a clear case 

to proceed along a very gradual upward path for the fed funds rate, conscious of global 

disinflationary trends and confirming along the way that wage and price inflation are 

indeed maintaining their steady upward momentum. Given the likelihood and severity of 

downside risks to inflation, the potential for a drift down in inflation expectations, the 

Federal Reserve’s dual mandate of maximum employment and price stability, and the 

asymmetries posed by the effective lower bound, the path for policy rates should accept 

some modest, temporary overshooting of the Federal Reserve’s inflation goal to allow 

inflation to approach the Federal Reserve’s 2 percent medium-term target from above. 

Doing so will provide valuable insurance against the risks of disinflation, policy reversal, 

and ending back at a zero fed funds rate. 

Fiscal policy. Near-term fiscal policy has been well-calibrated to the prevailing economic 

circumstances but demographic trends and rising interest rates will lead to larger deficits 

June 24, 2016
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2 INTERNATIONAL MONETARY FUND

over the medium-term. The U.S. continues to need a detailed medium-term fiscal 

consolidation plan to prevent a renewed rise in the public debt. Such a plan would need to 

target a medium-term federal government primary surplus of about 1 percent of GDP (a 

general government primary surplus of about 3⁄4 percent of GDP) and address rising health 

and social security costs, raise revenues, and improve the structure of the tax system.

Insofar as the measures needed to boost growth and tackle poverty require additional 

fiscal resources, they should be funded from new revenues or a reallocation of spending 

priorities and fit within a path for the fiscal deficit that ensures a steady decline in the 

public debt-to-GDP ratio. It will be important also to find institutional mechanisms to avoid 

self-inflicted wounds such as those created by political brinkmanship over the debt ceiling 

and the threat of government shutdown.

Financial reforms. Action is needed to institute the range of improvements in the financial 

regulatory framework that were outlined in the 2015 Financial System Stability Assessment. 

Perhaps most pressing, though, is the need to oppose any wholesale or broad-based

efforts to dilute some or all of the provisions of the Dodd-Frank Act.
UNITED STATES

INTERNATIONAL MONETARY FUND 3

Approved by: 

Alejandro Werner 

(WHD) and 

Vivek Arora (SPR)

Discussions took place in Houston and Dallas (April 4–6), New York 

(May 1–4) and Washington D.C. (May 23–June 9). Concluding meetings 

with Chair Yellen and Secretary Lew took place on June 20. The team 

comprised N. Chalk (head), Y. Abdih, A. Alichi, R. Balakrishnan, 

S. Danninger, E. Kopp, A. Pescatori, D. Puy (all WHD), T. Matheson (FAD), 

E. Mathias (LEG), and S. Laseen (SPR).

CONTENTS

OUTLOOK AND RISKS ___________________________________________________________________________5

THE SUPPLY SIDE CHALLENGES AHEAD______________________________________________________ 16

POLICY STRATEGIES ___________________________________________________________________________ 22

A SLOW TRAIN TO “NORMAL” _______________________________________________________________ 30

KEEPING THE FINANCIAL SYSTEM SAFE _____________________________________________________ 34

STAFF APPRAISAL _____________________________________________________________________________ 43

BOXES

1. Consumption and the Oil Dividend_____________________________________________________________7

2. Drivers of the U.S. Dollar ______________________________________________________________________11

3. U.S. Shale Oil and Global Spillovers____________________________________________________________12

4. The Decline of U.S. Dynamism_________________________________________________________________19

5. Polarization and Consumption ________________________________________________________________20

6. Reform of the U.S. Corporate Income Tax _____________________________________________________29

7. Did the Global Financial Crisis Break the U.S. Phillips Curve? __________________________________33

8. Securitization and Monetary Policy: Watch Out for Unintended Consequences _______________35

9. Developments in the U.S. Life Insurance Sector _______________________________________________38

10. Withdrawal of Correspondent Bank Relationships____________________________________________41

FIGURES

1. Financial Conditions ___________________________________________________________________________15

2. Inflation Dynamics_____________________________________________________________________________31

TABLES

1. Selected Economic Indicators _________________________________________________________________45

2. Balance of Payments __________________________________________________________________________46

3. Federal and General Government Finances ____________________________________________________47
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4 INTERNATIONAL MONETARY FUND

ANNEXES 

I. Response to Past Policy Advice _________________________________________________________________ 48

II. Follow-Up on FSAP Recommendations ________________________________________________________ 50 

III. Risk Assessment Matrix _______________________________________________________________________ 66

IV. Public Debt Sustainability Analysis ____________________________________________________________ 67

V. External Sector Assessment ____________________________________________________________________ 74

 
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INTERNATIONAL MONETARY FUND 5

OUTLOOK AND RISKS

1. The past few quarters have seen a temporary growth setback. The U.S. is entering its 

seventh consecutive year of expansion. The unemployment rate has fallen to 4.7 percent, household 

net worth is close to pre-crisis peaks, and inflation remains contained. Nonetheless, the past few 

quarters have been characterized by a deceleration that is attributable to a continued contraction in 

energy sector investment; weak non-energy, non-residential investment; and a persistent drag from 

net exports (linked to weaker global growth and 

the strength of the U.S. dollar). Although it is more 

difficult to find proximate causal factors, consumer 

demand has also slowed. The recent disappointing 

growth numbers are expected to be short-lived but

the latest jobs report does raise concerns that U.S. 

growth may be losing momentum. However, more 

data are needed to establish if the previouslypositive trajectory for the labor market has shifted. 

More encouragingly, high frequency indicators 

point to activity already reaccelerating in the 

second quarter. Over the near term, we expect 

growth to be supported by:

 Labor market. Since the beginning of this year, 

nonfarm payroll increases have averaged 

150 thousand per month and real household 

disposable income is growing at around 

3 percent. The unemployment rate has 

declined to 4.7 percent, although the cyclical 

rebound in labor force participation earlier this 

year appears to have been reversed. Despite 

the impressive record of job creation, various 

indicators still point to remaining (albeit 

diminishing) labor market slack from those that

have become detached from the labor force or 

are involuntarily working part-time.

 Housing. Most of the stock of foreclosed homes 

has been reabsorbed and household formation

has picked up (although millennials remain

constrained by affordability and high debt). 

Residential investment is expected to continue 

to rise as a share of GDP and recovering house 

prices should support household wealth gains.

-2

0

2

4

6

-3

-2

-1

0

1

2014Q1 2014Q3 2015Q1 2015Q3 2016Q1

Contribution to Growth (%pts)

GDP growth

Net Exports (LHS) (%, RHS)

Government (LHS)

Oil investment (LHS)

Sources: BEA; Haver Analytics; and IMF staff calculations

Unemployment 

Rate (UR)

Quits

Layoffs

Openings

Hires

Long term UR

Invol. part-time

U6

December 2009 Average 2005-2006 Latest

Labor Market Slack 1/

Sources: Haver Analytics; and IMF staff calculations

1/ Closer to the center signifies less labor market slack

6

7

8

9

10

11

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2010 2011 2012 2013 2014 2015

Household Formation and Vacancy Rates

Homeowner vacancy rate 

(percent, LHS)

Sources: Census Bureau; and Haver Analytics; and IMF staff calculations

Rental vacancy rate 

Household formation (percent, RHS)

(millions, LHS)
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6 INTERNATIONAL MONETARY FUND

 Household balance sheets. So far, lower energy 

prices have not provided the expected boost to 

private consumption that was expected (see 

Box 1). Nevertheless, the oil dividend and 

strong growth in disposable incomes have 

allowed households to increase saving and 

strengthen their balance sheets. Conditioning 

on the recovery in household net worth, the 

personal saving rate is now well above levels 

that would have been predicted by historical 

patterns.

Weighing these various forces, growth is forecast to be 2.2 percent in 2016 and 2.5 percent in 2017. 

The output gap, which was estimated at 1 percent of potential GDP in 2015, is expected to close by 

end-2017 and PCE inflation is expected to slowly rise above 2 percent in 2017–19 before returning 

to the Federal Reserve’s medium-term target.

2015 2016 2017 2018 2019 Longer Run 2/

CBO 2.5 2.6 2.2 1.8 2.1

Consensus 3/ 1.9 2.3 n.a. n.a. n.a.

IMF 2.2 2.5 2.3 2.0 2.0

CBO 2.7 2.5 2.1 1.8 2.1

Consensus 3/ 2.0 2.2 n.a. n.a. n.a.

FOMC 2.0 2.1 2.0 n.a. 1.9

IMF 2.5 2.3 2.2 2.0 2.0

CBO 4.5 4.5 4.7 4.9 5.0

Consensus 3/ 4.7 4.5 n.a. n.a. n.a.

FOMC 4.7 4.6 4.6 n.a. 4.9

IMF 4.9 4.8 4.6 4.7 5.1

CBO 1.5 2.0 2.0 2.0 2.0

Consensus 3/ 1.6 2.1 n.a. n.a. n.a.

FOMC 1.5 1.9 2.0 n.a. 2.0

IMF 1.0 2.2 2.3 2.1 2.0

CBO 1.6 1.9 2.0 2.0 2.0

FOMC 1.7 1.9 2.0 n.a. n.a.

IMF 1.8 2.1 2.2 2.1 2.0

CBO -2.0 -0.9 -0.2 -0.1 -0.3 -0.5

IMF -1.0 -0.5 -0.1 0.2 0.1 0.0

1/ CBO projections are from the Budget and Economic Outlook Jan. 2016; 

FOMC projections are from the June 2016 Summary of Economic Projections; 

IMF projections are from June 17, 2016.

2/ Year 2021 other than for FOMC

3/ Blue Chip Consensus, June 2016

Economic Forecasts (percent) 1/

Projections

1.4

Output Gap (percent of potential, eop)

Core PCE Inflation (Q4/Q4)

 PCE Inflation (Q4/Q4)

Unemployment Rate (eop)

Real GDP Growth (Q4/Q4)

2.0

5.0

0.5

Real GDP Growth (annual average)

2.4

0

2

4

6

8

10

12

450 475 500 525 550 575 600 625 650 675 Personal Saving Rate

Household net worth (% of disposable income)

Saving & Net Worth, 1983-2016 (percent)

2013Q1

2016Q1

Sources: BEA; FRB; and Haver Analytics
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INTERNATIONAL MONETARY FUND 7

Box 1. Consumption and the Oil Dividend

This time is different? Since November 2014, the 

drop in oil prices has provided a 1 percent of GDP 

windfall to U.S. households. Prior to the financial crisis, 

there was an empirically robust “excessive” reaction of 

consumption to energy price changes (i.e., spending 

increased by more than the oil price gains1). However,

in the most recent episode the consumption response 

appears small. Post-financial crisis, the elasticity of 

consumption to energy price changes has fallen from 

around 3 to 0.4.2 This decline has been observed

across all subcomponents of consumption but it has 

been particularly pronounced for goods consumption 

(which historically has driven the overall response but

now appears insensitive to energy price changes).

Why? Multiple factors are clearly at play, including the 

shift of the U.S. to being more energy self-sufficient in 

recent years. It is premature to have a conclusive view 

on the drivers but some stylized facts may be 

indicative:

 There no longer appears to be the same 

positive impact of lower oil prices on 

consumer confidence—a leading indicator of 

durable goods purchases—as in the pre-crisis 

era. Indeed, the near-term effects on 

confidence now appear, if anything, to be 

negative.

 The correlation between equity prices and oil 

prices has shifted from -0.3 percent pre-crisis 

to +0.6 percent in 2010–15. As a result, the 

associated wealth and confidence effects on 

consumption from rising equity valuations is 

now working in the opposite direction.

 The impact of oil prices on the interest rates 

on consumer credit are more muted than they 

have been in earlier historical episodes (i.e. in 

the 1970–80s). Indeed, it has been hard to 

detect any reduction in credit costs from lower 

oil prices since the early-1990s. 

1 See, for example, Eldstein and Kilian (2009) and Hamilton (1996).

2 Estimates are based on a VAR framework using monthly data on real consumption from the PCE and 

unanticipated changes in real income from changes in gasoline prices. Consumption elasticity is defined as the 

percent change in consumption associated with a 1 percent increase in energy spending.

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Pre-Crisis Post-Crisis

Decomposition of PCE Elasticity to Lower 

Energy Prices (percentage points)

Source: IMF staff estimates

Aggregate PCE

Motor vehicles

Durables excl. motor vehicles

Non-durables

Services

- 3

- 2

- 1

0

1

2

3

4

- 3

- 2

- 1

0

1

2

3

4

1 2 3 4 5 6 7 8 9

Months

Response of Consumer Confidence to 10% 

Lower Gas Prices (index points) 

Pre-crisis

Source: IMF staff estimates

Post-crisis

-1.4

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

-1.4

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

0.0

0.2

1 2 3 4 5 6 7 8 9

Months

Response of Rates on Auto Lending to 

10% Lower Gas Prices (percent) 

1970-1986

Source: IMF staff estimates

1987-2006
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8 INTERNATIONAL MONETARY FUND

2. Lower oil prices and increasing energy independence have combined to contain the 

U.S. current account deficit over the past year. This has been despite the cyclical growth 

divergence with respect to trading partners and the rapid rise in the U.S. dollar. However, over the 

medium term, at current levels of the real exchange rate, the current account deficit is expected to 

rise above 4 percent of GDP. Net financial inflows were about 2 percent of GDP in 2015 with rising 

portfolio inflows being offset by weakness in direct investment and other inflows. The net 

international investment position (NIIP) fell to -39 percent of GDP in 2015 and, under staff’s baseline 

outlook, the NIIP would deteriorate by a further 10 percent of GDP over the next five years (largely 

due to the projected current account deficits).

3. Risks to the growth outlook are balanced:

 The path of the U.S. dollar. The 13 percent real 

appreciation of the U.S. dollar since the summer 

of 2014 has taken its toll on manufacturing

investment and net exports. Looking forward, 

the future path of the dollar represents a 

symmetric risk to the U.S. outlook:

 On the downside, further appreciation, 

particularly if driven by a divergence in the 

inflation outlook between the U.S. and other 

systemic economies (rather than by 

diverging growth prospects) would eat into 

growth (Box 2). The current level of the U.S. dollar is assessed to be overvalued by 10–20 

percent and the current account deficit is around 1.5–2 percent of GDP larger than the level 

implied by medium-term fundamentals and desirable policies (see Annex IV). As such, a 

strengthening in the dollar would serve to push the external position further away from levels 

justified by medium term fundamentals.

 Conversely, a continuation of the depreciation that occurred since the beginning of the year

would represent an important upside to both growth and inflation.

 Energy sector investment and output. The 

decline in crude prices has caused oil 

companies to curtail investment by about 

40 percent in 2015 (subtracting 0.4 percent 

from GDP growth). In 2016, energy investment 

is expected to fall by another 30 percent,

subtracting 0.2 percent from growth. The risks

to growth associated with the future path of oil 

prices are asymmetric. 

20

40

60

80

100

120

0

40

80

120

160

200

2010 2011 2012 2013 2014 2015 2016

Oil Investment and WTI

Sources: BEA; Haver Analytics; and IMF staff calculations

Oil investment

(US$ billions, LHS)

WTI (US$ per barrel, RHS)

-600

-550

-500

-450

-400

-350

80

85

90

95

100

105

2010 2011 2012 2013 2014 2015 2016

REER and Net Exports

Sources: BEA; FRB; and Haver Analytics

Net Exports

(2009$ billions, RHS)

Broad Trade-weighted REER

(1973M3=100, LHS)
UNITED STATES

INTERNATIONAL MONETARY FUND 9

 On the downside, the compression of capital spending that has already occurred implies that 

even at lower oil prices, larger-than-expected falls in investment will be small as a share of 

GDP and have only a minor impact on growth. 

 However, if oil prices sustain their current levels and tight financing conditions for the sector 

begin to normalize, oil-related investment could resume, with a modest upside risk to activity

(Box 3).

 Non-oil investment. A shrinking output gap and decent prospects for future domestic demand 

growth should support investment in non-oil, non-residential sectors. However, recent data has 

shown such investment moving in the opposite direction. This could be reflective of the strength 

of the U.S. dollar or perhaps broader industrial spillovers from the downturn in the energy sector. 

It could also reflect a more structural trend at work as U.S. output becomes less intensive in 

physical capital and more reliant on human and informational capital. If true, this would pose a 

downside risk to aggregate demand as the economy adjusts to the new equilibrium.

 Finally, a consumption effect? To date, there has been little apparent consumption stimulus from 

lower oil prices (the personal savings ratio stands at 5.4 percent, up 1⁄2 percent since mid-2014). 

Nonetheless, lower oil prices are helping to strengthen household balance sheets, particularly for 

lower income households. This should, at a minimum, increase the resilience of the economy to 

negative shocks and could mean a belated reaction of consumption. As such, this offers an 

unambiguous upside to the growth forecast. 

 U.K. exit from European Union. Staff estimates suggest the impact on U.S. growth of a disruptive 

U.K. exit from the European Union are likely to be modest. The principal channels would come 

through a sustained rise in global risk aversion that would lead to a compression of U.S. 

sovereign yields, a rise in the U.S. dollar and a sell-off in risk assets. However, given the 

unprecedented nature of the event, the broader effects-including on the U.S. economy and its 

large financial system-are highly uncertain and could evolve in unpredictable and more negative 

ways than indicated by macro models.

 A misjudgment about potential growth. There is a 

risk that staff’s outlook has over-estimated both 

the historical path of potential growth and the 

degree of slack that currently exists. If true, this 

could mean that the economy is now starting to 

bump up against capacity constraints (including 

in the labor market). As such, growth for the 

coming years could settle at well below 

2 percent. Perhaps more problematic, a lower 

path of potential could give rise to an 

unexpected acceleration in inflationary 

pressures in the near-term, leading the Federal 

-3

-2

-1

0

1

2

3

4

- 3

- 2

-1

0

1

2

3

4

2005 2007 2009 2011 2013 2015 2017 2019 2021

Growth: Potential and Actual (percent)

Sources: BEA; and IMF staff estimates

Actual

Potential

Projection
UNITED STATES

10 INTERNATIONAL MONETARY FUND

Reserve to more assertively raise the policy rate. This would cause the dollar to appreciate and 

increase asset price volatility (as market participants find themselves wrong-footed). 

 Spillover implications. Such a scenario would have important negative spillovers, particularly 

given that the global economy currently appears ill-prepared for a rapid rise in U.S. policy 

rates, for capital to flow back to the U.S., for risk premia to rise, and for the dollar to 

accelerate upwards. Such near-term negative spillovers would be further exacerbated by the 

real transmission effects of a path for medium-term U.S. growth that is well below current 

expectations. 

4. Risks are skewed toward lower inflation. Further dollar strength would present a drag to 

imported inflation. However, even in the event of a stable currency, the significant global excess 

capacity seen across a range of tradable goods may lead to a protracted decline in tradable goods 

prices. This would be further exacerbated if the recent pattern of downgrades to global growth 

prospects continues. Finally, changing dynamics in the U.S. labor market, that are at this point not 

fully understood, may mean that the expected pick up in nominal wages could prove elusive, further 

weighing on inflation. 

5. Authorities’ views. Tepid growth over the last few quarters was viewed as likely to be 

transitory, especially when contrasted with the strong labor market data through April. Given the 

maturation of the cycle, the pace of job gains is expected to slow but, in May, job growth slowed 

substantially more than expected and that abruptness seems inconsistent with other more positive 

activity indicators. In the coming quarters, it was expected that sequential growth rates would pick 

up and moderately exceed potential growth. Near-term risks to the growth outlook were considered 

to be broadly balanced but there was some modest downside potential to inflation outcomes, 

particularly given weak global trends and the impact of residual seasonality on data in the first half of 

the year. Concern was expressed about the continued widening of the U.S. current account deficit, 

particularly as a symptom of weak global demand. Counterparts emphasized the importance that 

countries, including the U.S., use all available policy tools to boost demand. Officials also highlighted 

a number of advanced and emerging market economies with large external surpluses (including 

China, Germany, Japan, Korea, and Taiwan Province of China) which could usefully bolster domestic 

demand and, in so doing, contribute to stronger global growth and a more balanced world 

economy.
UNITED STATES

INTERNATIONAL MONETARY FUND 11

Box 2. Drivers of the U.S. Dollar

Drivers. Uncovered interest parity seems to be rejected by the data (see Engle 2013 for a review) but a more 

expansive theory would argue that exchange rate movements could be related to:

 Expected cumulative short-term rate differentials (as measured by movements in long-term rate 

differentials that capture divergences in medium-term neutral rates as well as inflation and 

monetary policy prospects); 

 Foreign exchange risk premia (extracted from survey expectations of exchange rates from 

Consensus Forecasts); and 

 Movements in the equilibrium real exchange rate (e.g. due to changes in the terms of trade). 

Empirical findings. A VAR framework1that adds variables to proxy global and country-specific shocks (VIX, 

WTI, expected inflation differentials, expected growth differentials, and short-term interest rates), reveals:

 FX risk premia and the 10-year interest rate differentials have a significant and persistent effect on 

exchange rates. 

 A global uncertainty shock (proxied by a higher VIX) induces an appreciation of safe haven 

currencies and the U.S. dollar rises against all other major bilaterals except the Yen. 

 Commodity currencies, such as the Canadian dollar, are sensitive to oil price movements including 

through a knock-on effect on the foreign currency risk premium.

1 See Balakrishnan, Laseen, and Pescatori, “U.S. Dollar Dynamics: How Important are Policy Divergence and FX Risk 

Premiums?” IMF Working Paper (2016). 

1.0

1.1

1.2

1.3

1.4

-2.0

-1.8

-1.6

-1.4

-1.2

-1.0

-0.8

2014M1 2014M7 2015M1 2015M7 2016M1

$/Euro Dynamics and Interest Differential

$/Euro

(RHS)

10 year interest differential

(foreign minus US, LHS)

Sources: Consensus Forecasts; FRB; Haver Analytics; and IMF staff calculations

-3

-2

-1

0

1

2

-3

-2

-1

0

1

2

0 4 8 12 16 20 24 28 32 36

Months

Trade-Weighted Dollar Response to Risk Premium 

and Interest Differential Shocks (percent) 1/

Source: IMF staff estimates

1/ Trade-weighted by Euro, Canadian dollar, UK pound, and yen; 68% bands

Risk premium 

(>0 = preference 

for US assets, LHS)

10 year interest differential

(foreign minus US, RHS)

Dollar 

appreciation

1.0

1.1

1.2

1.3

1.4

-8

-6

-4

-2

0

2014M1 2014M7 2015M1 2015M7 2016M1

$/Euro Dynamics and Risk Premium

$/Euro

(RHS)

Risk premium 

(>0 = preference 

for US assets,

LHS)

Sources: Consensus Forecasts; FRB; Haver Analytics; and IMF staff calculations

-1.0

-0.5

0.0

0.5

1.0

-1.0

-0.5

0.0

0.5

1.0

0 4 8 12 16 20 24 28 32 36

Months

Dollar IRFs to VIX Shock (percent)

Source: IMF staff estimates

UK Pound

Canadian Dollar

European Euro

Japanese Yen

Dollar 

appreciation
UNITED STATES

12 INTERNATIONAL MONETARY FUND

Box 3. U.S. Shale Oil and Global Spillovers

The shale oil “revolution”. The U.S. oil industry experienced one of its most dramatic shifts in 2010–15 

when the combination of high prices and technological change (notably horizontal drilling) allowed a 

doubling of U.S. crude production. Both the number and productivity of rigs increased with important 

implications for the oil market and global economy more broadly. 

Scenarios. Forecasts of future production face tremendous uncertainty but scenarios can help identify the 

range of possible future outcomes. Specifically, we 

examine three scenarios: 

 Baseline. Draws on the prediction of the 

future rig count that would be consistent with 

the current medium-term WTI forecast in the 

WEO; assumes a linear improvement in 

productivity;

 Upside. Assumes a similar rig count to the 

baseline but with a quadratic upward trend for 

productivity per rig; 

 Downside. Assumes decreasing gains in 

productivity (i.e. uses a concave trend) and lowers the estimated impact of WTI price on the rig 

count by one standard deviation.

The differential impact on production from these modest changes in assumptions is large. By 2020, U.S. 

production could range from 3.5 to 8.4 million barrels per day depending on the scenario (the baseline

scenario is very similar to the EIA’s latest forecast).

Global Spillovers. Using the G20 model, these shale oil scenarios are found to have:

 Relatively symmetric effects in the upside and 

downside scenarios, with the decline in global 

oil prices in the upside scenario leading to an 

increase of global GDP of about 0.4 percent.

 The biggest winners in an upside production 

scenario are India and Korea which have large 

oil imports. The most negative effects are for

Saudi Arabia and Russia, as they are highly 

dependent on oil and have limited trade links 

with the US.

 Despite the significant oil price decline in the 

upside scenario, Canada and Mexico (which 

are oil exporters) receive a marginally positive short-term impact on GDP because of their strong 

trade links with the U.S. However, these effects turn moderately negative by 2021.

-3

-2

-1

0

1

2

-3

-2

-1

0

1

2

Upside Scenario Real GDP, 2021 (% diff.)

United 

States

Saudi Arabia

World

Source: G20

Canada

ArgentinaBrazilChinaGermany

India

JapanKorea

Russia

Mexico

Other 

oil exporters

0

1

2

3

4

5

6

7

8

9

0

1

2

3

4

5

6

7

8

9

2007 2009 2011 2013 2015 2017 2019 2021

Total Production and Production per Rig

Source: IMF staff estimates

Production per rig

(hundreds of barrels 

per day, RHS)

Total production 

(millions of barrels 

per day, LHS)

Upside scenario

Downside scenario
UNITED STATES

INTERNATIONAL MONETARY FUND 13

6. Near-term fiscal policy has been well-calibrated to the prevailing economic 

circumstances. At the general government level, the change in the structural primary balance is 

expected to be -1⁄2 and 0.1 percent of GDP in 2016 and 2017, respectively. This should be mildly 

supportive of growth, particularly if gauged against the fiscal contractions (of around 1⁄2 percent of 

GDP) experienced in 2014–15. From a macroeconomic perspective, both near-term fiscal and 

monetary policies appear consistent with the need to provide modest support to the economy as it 

transitions toward full employment in the face of global and domestic headwinds (near-term fiscal 

and monetary policy settings are in line with recommendations in the 2015 Article IV, see Annex I). 

7. Fiscal uncertainties have been diminished by the passage of:

 The Bipartisan Budget Act of 2015 which suspended the debt ceiling until March 2017 and 

avoided the risk of government shutdown by locking in appropriations for 2016 and 2017. 

 Protecting Americans from Tax Hikes Act that lowered tax revenues by 31⁄2 percent of GDP over 

the next 10 years. Among the many provisions, the bill made permanent the enhanced child tax 

credit, the American Opportunity tax credit for college tuition, and the improvements to the 

earned income tax credit (i.e. the expansion to larger families and removal of the marriage 

penalty). The bill also made permanent the research and experimentation credit for corporations 

(which had been temporarily extended 15 times since 1985, sometimes retroactively). 

 Fixing America’s Surface Transportation Act that commits US$305 billion to surface transportation 

for the next 4 years and provides some degree of stability to states in planning projects that are 

co-financed with federal resources.

8. The Affordable Care Act (ACA) was the 

most comprehensive health reform since the 

introduction of Medicare and Medicaid in 1965. 

Data is now beginning to emerge as to its effects. 

Health insurance coverage has risen significantly, 

with the uninsured falling to 9.1 percent of the 

population in 2015. However, this still means

28.8 million people remain without insurance. The

remaining uninsured are mainly low-income young 

adults and non-permanent immigrants, including 

those with incomes that are too high to qualify for 

Medicaid (in those 19 states that chose not to 

expand Medicaid to households that earn less than 133 percent of the federal poverty threshold) but 

too low to receive ACA insurance premium subsidies. Following passage of the ACA, health costs 

have been rising at a slower pace (PCE health care inflation has risen, on average, by 1.4 percent per 

year over the past 5 years). The impact of the ACA on labor supply remains unclear and subject to 

large uncertainties. The Congressional Budget Office estimates the ACA would reduce hours worked 

by around 1.7 percent by 2025 (although other empirical studies have smaller effects). Also, the ACA 

requirement to maintain children on a parent’s insurance until they are 26 years old appears to have 

raised the wages of young adults. Finally, the early evidence suggests that the ACA has provided 

8

11

14

17

8

11

14

17

2005 2007 2009 2011 2013 2015

Uninsured Rate (percent of population)

Source: National Health Interview Survey
UNITED STATES

14 INTERNATIONAL MONETARY FUND

some support to those below, or close to, the poverty line (simulation analysis points to a 6 percent 

increase in the income equivalent for the lowest quintile).

9. The volatility in financial markets in the early part of 2016 does not detract from the 

fact that financial conditions have been very supportive of the real economy (Figure 1). This is 

particularly true after parsing out the effects—on equity and bond prices—of the evident stress in 

energy and mining companies. Most notably, the availability and cost of financing for households—

mortgage rates, auto loans, and the senior loan officer survey—remain very favorable. Also, as riskfree rates have trended downwards, investment grade yields of non-energy companies have 

generally been moving sideways. 

10. Risks to the U.S. financial system are broadly unchanged from that of a year ago. 

 The U.S. banking system continues to strengthen its capital position. Tier 1 capital is at 

13 percent of risk weighted assets (RWA), with increasing RWA density (now at 71 percent). The 

system appears resilient to a range of extreme market and economic shocks. The results of the 

2016 Comprehensive Capital Analysis and Review exercise will, however, be released in June,

precluding an updated assessment relative to the 2015 Article IV. Measures to bolster bank 

liquidity, as well as strengthen recovery and resolution, are being steadily implemented.

 There are some pockets of vulnerability. These include credit quality in auto lending, student 

loans, and commercial real estate lending. Energy and mining loan exposures are also likely to 

bear losses. However, these are relatively small parts of the U.S. financial system. Compressed 

interest margins continue to weigh on bank profitability and are causing intermediation to 

increasingly move to the nonbank sector,

including mortgage origination and servicing 

being relocated to specialist non-banks. 

However, such mortgages are predominantly 

being securitized by the government sponsored 

enterprises and meet the debt-to-income and 

underwriting requirements of the Qualified 

Mortgage standard. Housing market policies, 

including expanded lending by the Federal 

Housing Administration, are, however, leading to 

looser underwriting standards which could, over 

time, worsen the credit quality of mortgages. 

 The various financial stability issues highlighted in the 2015 FSAP, for the most part, have not 

been addressed (Annex II). These include data blind spots, the lack of risk management 

requirements and stress testing for the asset management industry, residual vulnerabilities in repo 

markets and money market funds, the complex institutional structure for financial regulation, a 

housing finance system that remains in limbo, and an incomplete understanding by the regulators 

of financial interlinkages. 

670

680

690

700

710

14

16

18

20

22

24

2013 2014 2015 2016

FHA Mortgage Originations

FICO score of FHA originations

(weighted average, RHS)

Sources: Ellie Mae; Haver Analytics; and IMF staff calculations

FHA originations

(percent of total, LHS)
UNITED STATES

INTERNATIONAL MONETARY FUND 15

Figure 1. Financial Conditions

Lending standards are still supportive of growth, 

especially for households.

Low interest rates have led to sustained credit 

growth.

The energy sector has led a price correction in 

equity indices.

Rising high yield spreads reflect default concerns 

that are broader than just energy.

However, energy and mining corporate profits are 

a small fraction of the total.

Despite higher spreads, yields have mostly moved 

sideways as risk-free rates have trended down. 

Sources: Haver Analytics and IMF staff calculations

-40

-20

0

20

40

60

80

-40

-20

0

20

40

60

80

2000 2002 2004 2006 2008 2010 2012 2014 2016

Loan Officer Survey (percent tightening)

Commercial and Industrial 

(C&I) loans to small firms

Credit card loans 

to individuals 

or households 

-6

-4

-2

0

2

4

6

8

2

3

4

5

6

7

2010 2011 2012 2013 2014 2015 2016

Consumer Credit (percent)

Home mortgage rate 

(30 year fixed, LHS)

New car loan rate 

(48 month, LHS)

Consumer credit 

growth (yoy, RHS)

80

100

120

140

160

80

100

120

140

160

2010 2011 2012 2013 2014 2015 2016

Equity Market (2010Q1=100, log)

S&P 500

S&P 500; energy

S&P 500; financials

0

2

4

6

8

0

2

4

6

8

2011 2012 2013 2014 2015 2016

Corporate Spreads (percent)

Investment grade ex-energy

High yield ex-energy

High yield

Investment grade

-0.5

0.0

0.5

1.0

1.5

2.0

-0.5

0.0

0.5

1.0

1.5

2.0

2005 2007 2009 2011 2013 2015

Corporate Profits by Sector (US$ trillions)

Other domestic 

industries

Petroleum 

and coal Financial

3

5

7

9

3

5

7

9

2005 2007 2009 2011 2013 2015

Corporate Yields (percent)

AAA Yield

BAA Yield
UNITED STATES

16 INTERNATIONAL MONETARY FUND

 A large U.S. insurance company appealed its designation by the Financial Stability Oversight 

Council as a Systemically Important Financial Institution. Subsequently, a federal court has ruled 

on the case and decided to rescind the designation. The Financial Stability Oversight Council is 

currently appealing that court decision.

 The potential lack of market liquidity in a range of fixed income instruments, particularly at times 

when markets are under stress, remains a concern that could increase the risk of destabilizing 

forced asset sales or create volatility in market pricing. In the new regulatory environment, banks’

balance sheet space for market-making activities has become tighter and alternative market 

systems are still unable to provide a full offset. Such market illiquidity not only induces more price 

volatility but also has the potential for creating macro-financial effects. However, adaptation is 

already occurring on multiple fronts as buy-side institutions arrange their activities with an 

understanding that liquidity-under-stress will be lower.

THE SUPPLY SIDE CHALLENGES AHEAD

11. Despite the sustained economic expansion, the U.S. faces a confluence of forces that 

will weigh on the prospects for continued gains in economic well being. A rising share of the 

U.S. labor force is shifting into retirement, basic infrastructure is aging, productivity gains are scanty, 

and labor markets and businesses appear less adept at reallocating human and physical capital. 

These growing headwinds are overlaid by pernicious secular trends in income: labor’s share of 

income is around 5 percentage points lower today than it was 15 years ago, the middle class has 

shrunk to its smallest size in the last 30 years, the income and wealth distribution are increasingly 

polarized, and poverty has risen. 

12. These secular trends both interact and reinforce each other. Demographic changes are 

slowing potential growth, delaying the renewal of business equipment, and depressing labor force 

dynamism. Reduced dynamism in the corporate sector has the potential to diminish innovation, 

deepen the loss of middle income jobs, and further polarize the income distribution. Income 

polarization itself can prevent productivity-improving investments in education by poorer 

households, lessen social mobility, add to economic insecurity, and limit consumption prospects. The 

causes of and interactions between these various forces are complex and not well understood. Skillbiased technological change, the more globalized and integrated market for goods and labor, 

changing structures of industrial and labor markets, and insufficient offsetting domestic policy 

actions are all feeding into these dynamics. However, what is clear is that these trends are coinciding 

with a well-documented decline in potential growth (from above 3 percent in the early 2000s to 

below 2 percent today) that is being mirrored across a range of advanced and emerging economies. 

If left unchecked, these forces will continue to drag down both potential and actual growth, 

diminishing gains in living standards and worsening poverty.
UNITED STATES

INTERNATIONAL MONETARY FUND 17

13. Demographics are an immutable headwind. The aging of the baby boom generation is set 

to cause a fall in the growth of the working age population in the coming years as well as a steady 

decline in labor force participation. As a 

consequence, the labor force is projected to grow at

just 0.5 percent per year over the next decade 

(significantly slower than the 0.9 percent growth of

the past 25 years). Falling growth in the labor force 

and a higher dependency ratio will eat into potential 

growth and add to medium-term fiscal challenges. 

Indeed, aging-related spending is forecast to cause 

an inflexion point in the public debt GDP ratio 

starting in 2019, raising concerns over the 

sustainability of the current medium-term fiscal 

trajectory (see below). 

14. Since the late 90s and early 00s, total factor productivity (TFP) in the U.S. has slowed 

significantly. TFP growth has been close to zero in the past 5 years and estimates of labor 

productivity have seen a similar decline. This slower productivity growth has been a global 

phenomenon and there is evidence it is related, at least in part, to a slower pace of innovation, a 

generalized decline in economic dynamism and the pace of new firm formation, rising firm 

concentration, falling labor market turnover, and the continued shift from manufacturing to services.

15. There has been a marked decline in labor market dynamism. In contrast to the “job-less 

recovery” of the early 2000s, the current expansion has seen relatively healthy employment growth

but wage gains have been anemic. Over one-half of the post-recession employment gains have been 

accounted for by the 55-and-over population who find themselves with insufficient income for 

retirement (and, as a result, are working later in life). In addition, churning—a measure of labor 

market dynamism that has been correlated with real wage growth—has followed a downward trend 

for both men and women, is at historically low levels, and seems connected to slower productivity 

growth (Box 4).

0

1

2

3

4

0

1

2

3

4

1995 2000 2005 2010 2015

Consensus Long-run Growth Forecasts (%)

France

United Kingdom

Japan

Canada

United States

Germany

Source: Consensus Forecasts

0.0

0.3

0.6

0.9

1.2

1.5

0.0

0.3

0.6

0.9

1.2

1.5

1980s 1990s 2000s 2010-2015 1/

US Average TFP Growth (percent)

Private business, multi-factor

Utilization-adjusted TFP

Sources: BLS; FRB; Haver Analytics; and IMF staff calculations

1/ For multi-factor, 2011-2015. 2010 is included in 2000s

20

25

30

35

40

20

25

30

35

40

2015 2025 2035 2045 2055

Demographic Shift

Sources: Census Bureau; Haver Analytics; and IMF staff calculations

Old age dependency ratio

(65+ as percent of population aged 15-64, RHS)
UNITED STATES

18 INTERNATIONAL MONETARY FUND

16. Firm creation and destruction are also below historic levels. Business dynamism (i.e., 

business birth, growth, and exit) plays a critical role 

in the reallocation of resources from less-productive 

activities to more-productive ones. An important 

component of the observed fall in business 

dynamism has been a marked decline in firm 

startups and a decreasing role of young businesses

in the economy. Since newer businesses have much 

higher innovation intensity than their more mature 

counterparts, their declining presence is eating into 

productivity. Contributing factors for this measured 

drag to dynamism include shifting patterns in the IT 

sector (which contributed substantially to business 

formation until the mid-2000s but has now matured 

as an industry) and increasing firm concentration (which is adding to the market power of 

incumbents and potentially acting as an implicit barrier to entry).

17. The labor share of income has seen secular decline which began to accelerate in 2000. 

This is a phenomenon that has also been seen in 

other advanced economies. The evidence suggests 

a combination of factors are at work including wage 

competition from abroad, a compositional shift in 

GDP toward services (where the labor share is 

lower), and a decline in the labor share within 

manufacturing and industry (particularly for importexposed sectors). Explanations for the latter range 

from a generalized decline in unionization rates, a 

shift of manufacturing activity to southern and 

western states that prohibit union security 

agreements, and an off-shoring of more laborintensive tasks within manufacturing and industry. 

8

10

12

14

16

78

81

84

87

90

1986 1989 1992 1995 1998 2001 2004 2007 2010 2013

Dynamism (percent)

Sources: Longitudinal Business Database; and IMF staff calculations

"Mature" firm share of employment

(mature = older than 10 years, LHS)

Firm entry rate 

(percent of overall, RHS)

56

58

60

62

64

66

46

48

50

52

54

56

58

1970 1980 1990 2000 2010

Income Distribution and Labor Share

Share of population between 

50-150% of median income 

(percent, LHS)

Labor share of GDP

(percent, RHS)

Sources: BLS; Current Population Survey; and IMF staff calculations
UNITED STATES

INTERNATIONAL MONETARY FUND 19

Box 4. The Decline of U.S. Dynamism

Labor market fluidity. Since the late 1980s, American 

workers have been changing jobs less frequently1. Quit 

and layoff rates have declined and job-to-job moves—

a common practice for workers as they move up the 

wage ladder—have fallen by 40 percent. As a result 

workers are holding fewer jobs during their careers, 

reallocating less across sectors, and accumulating less 

transferable skills. The decline in job-to-job moves may 

also be a partial explanation behind lower wage 

growth and a falling labor share of income.

Firm formation. The structure of the corporate sector 

is mirroring these labor market changes. The rate of 

business entry and exit has been on a secular decline. 

This was initially concentrated in a few sectors (e.g. 

retail) but, over the past 15 years, this declining pattern has broadened to include more innovative sectors

such as technology. 

The link to productivity. It has been no coincidence that, during this same period, the most productive 

firms have been growing at a slower pace. Within individual industries business concentration has risen and 

the dispersion of productivity across firms within a sector has grown.

2 The decline in labor market fluidity 

could well have slowed the allocation of employee talent to productive firms and, in so doing, suppressed 

overall productivity growth. 

Why? Reasons for falling dynamism are difficult to 

untangle given the two-way causality between 

productivity and business or labor churning. 

Demographics and a changing industry mix explain 

only a small part of the decline. More favorable

interpretations (such as more efficient job-matching) 

do not appear to be supported by the data. Recent 

research3 has focused on slow-moving structural 

causes although, empirically, the relative merits of 

these explanations are unclear: 

 Greater hurdles for firms to enter and workers 

to reallocate due to rising legal and 

regulatory constraints (e.g. limits on at-will 

employment, noncompete agreements in labor contracts, or increasing barriers in business and 

occupational licensing);

 Changes in corporate business models that better exploit economies of scale, including greater 

vertical integration within a company, bounded by the constraints imposed by anti-trust rules;

 Evolving social preferences, including a diminishing willingness to take employment risks.

1 S. Davis and J. Haltiwanger (2014) "Labor Market Fluidity and Economic Performance," NBER Working Papers 

20479 and S. Danninger, “Is the US Labor Market Changing” IMF Working Paper (2016).

2 R. A. Decker, J. Haltiwanger, R. S. Jarmin and J. Miranda (2015). "Where Has All The Skewness Gone? The Decline

In High-Growth (Young) Firms In The U.S," NBER Working Papers 21776.

3

 R. Molloy, C. L. Smith, R. Trezzi and A. Wozniak (2016) “Understanding declining fluidity in the U.S. labor market”, 

Brookings Papers on Economic Activity.

10

14

18

22

10

14

18

22

2000 2002 2004 2006 2008 2010 2012 2014

Job-to-Job Transition Rate (percent)

Sources: Census Bureau; and IMF staff calculations

Annual job change rate among 

full-time, full year employed workers

6

8

10

12

14

16

18

6

8

10

12

14

16

18

1985 1989 1993 1997 2001 2005 2009 2013

Firm Entry Rates Across Sectors (percent)

Sources: Census Bureau; and IMF staff calculations

Manufacturing and wholesale

(simple average)

Retail and IT 

(simple average)
UNITED STATES

20 INTERNATIONAL MONETARY FUND

Box 5. Polarization and Consumption1

Divergent paths. Since the 1970s, the real income of 

families in the low to middle income brackets have 

stagnated while real income growth of higher brackets 

has accelerated since the late 1990s. 

Polarization. Over the last four decades, many 

households have moved out of middle-income groups 

(defined as those earning 50–150 percent of the 

median income) and into the tails of the distribution. 

Since 2000, this “hollowing out” of the middle class, 

has been tilted more toward movements into the 

lower than the higher income ranks. 

Wealth. The net worth of households has also 

polarized. The real net worth of those groups who 

earn less than two-thirds of the median income is 

now 20 percent below where it was when the data 

started in 1983. Meanwhile the average real net 

worth of those earning more than twice the median 

income has doubled since 1983. 

Consequences. Staff estimates suggest that rising 

polarization has led to a lower aggregate 

consumption over the past 15 years, as more 

households have moved to the low-income tail of the 

distribution with more limited resources for 

consumption. In addition, empirical work shows that 

the overall marginal propensity to consume of these 

lower income groups has not increased. Staff estimates that these effects have lowered the level of 

aggregate consumption by about 31⁄2 percent (equivalent to more than one year of consumption) since 

1998. 

1 See A. Alichi, K. Kantenga, and J. Sole, “Income Polarization in the United States”, IMF Working Paper (2016) and 

“The American Middle Class is Losing Ground”, Pew Research Center (2016).

-20 0 20 40 60 80 100 120

Household Real Net Worth (percent of 

1983 real net worth)

<67% of median income

Sources: Census Bureau; and IMF staff calculations

67-200% of median income

>200% of median income

0

20

40

60

80

100

120

0

20

40

60

80

100

120

1970 1980 1990 2000 2010

Real Median Family Income by Income 

Percentiles (2005$ thousands)

Source: Current Population Survey

Note: Adjusted for family size using OECD's equivalence scale.

10th

50th

90th

95th
UNITED STATES

INTERNATIONAL MONETARY FUND 21

18. The re-profiling of the economic structure, coupled with skill-biased technological 

progress in both services and manufacturing, has contributed to a shrinking of the share of 

the population in middle income jobs and a broader polarization of the income distribution

(Box 5). Since the mid-1980s, the number of semi-skilled jobs paying incomes around the national 

median has fallen and jobs are instead being 

created either at the upper or lower ends of the 

occupational skill distribution. This phenomenon 

has been dubbed “job polarization”. At the same 

time, the earnings of workers remaining in the 

middle and lower segments of the skill distribution 

have stagnated or fallen. A direct consequence has 

been the “hollowing out” of the income distribution. 

The share of households earning between 50 and 

150 percent of the median income has fallen from 

58 to 46 percent over the past 45 years. An even 

more pronounced but connected trend has taken 

place in the polarization of the wealth distribution. This has had broad, macro-relevant,

consequences for consumer behavior, human capital accumulation, and the housing market.

19. In parallel with the polarization of the income and skills distribution, there has been a 

steady increase in poverty in the U.S. In the latest data, 1 in 7 Americans are living in poverty, 

including 1 in 5 children and 1 in 3 female-headed households. Further, around 40 percent of those 

in poverty are working. The incidence of poverty has 

been unusually persistent even as the economic 

expansion has matured. Poverty levels today are 

higher across age cohorts and for both men and for 

women. All of the progress that was made in 

lowering poverty during the 1990s has now been 

unwound. There are overlapping factors at work that 

include a greater premium for skills, a declining

progressivity of the tax system, compositional 

changes in sectoral employment and educational 

attainment, as well as the broader economic 

dislocation triggered by the financial crisis.

10

20

30

40

50

60

10

20

30

40

50

60

1970 1980 1990 2000 2010

Source: Current Population Survey

Note: Adjusted for family size using OECD's equivalence scale

Middle Income

Low Income

High Income

Share of Households by Income (percent)

10

12

14

16

18

20

22

24

10

12

14

16

18

20

22

24

1970 1981 1992 2003 2014

Poverty Rates (percent of total population)

Under 18

Sources: Census Bureau; Haver Analytics; and IMF staff calculations

1/ Takes account of government programs designed to assist low income families

Total

Supplemental

measure 1/
UNITED STATES

22 INTERNATIONAL MONETARY FUND

POLICY STRATEGIES

20. Reducing poverty requires national efforts that are complemented by targeted 

responses in states and localities where the 

incidence of poverty is most concentrated. In the 

near-term, a more generous earned income tax 

credit (including eligibility for workers without 

dependents, those under 25, and older workers that 

are not yet eligible for social security) combined 

with a higher federal minimum wage would help 

alleviate poverty. These two measures would have 

strong complementarities. The improvements in the 

EITC can work in tandem with the minimum wage to 

ensure a meaningful increase in after-tax earnings 

for the nation’s poorest households (see 2014 

Article IV). Upgrading social programs to support 

the nonworking poor would also be a step forward.

This could include simplifying and unifying the 

various programs underlying the safety net, 

increasing the generosity of those programs, 

learning from the diversity of experiences at the 

state-level to identify the most effective approaches, 

and targeting federal payments toward achieving 

specified outcomes. Efforts to improve K-12 

education, invest in early childhood education, 

subsidize healthcare and childcare for lower income 

families, and expand needs-based support for 

tertiary and vocational education can have 

important effects, over a longer horizon, in reducing the inter-generational persistence of poverty.

21. Authorities’ views. The administration has repeatedly argued for raising the minimum wage 

and expanding the EITC for workers without dependent children as well as workers that are 21-24 

and 65-66 years old. The President’s budget also makes the case for providing high-quality 

preschool to lower income families, instituting full day kindergarten in every school district, and 

expanding funding for programs that support learning and development of the neediest children. 

More recently, the overtime regulations had been updated, doubling the salary threshold to US$ 913 

per week and extending coverage to 4.2 million lower income workers. Moreover, the threshold will 

now be automatically updated every 3 years based on wage growth. Officials also saw merit in 

reexamining the structure of safety net spending, particularly given that the generosity of cash 

poverty alleviation programs had declined in recent years with additional spending funded without 

an increase in the deficit.

7

8

9

10

7

8

9

10

30 40 50 60 70

$ / hour

State GDP / capita (2009$ thousands)

Effective Minimum Wage by State, 2015

Sources: BEA; Census Bureau; Department of Labor; and Haver Analytics

NY

AK

CA MA

VT CT

WV

MS ND

TX WY

DE FL

Federal minimum wage

8

10

12

14

16

18

8

10

12

14

16

18

1 2 3 4 5 6

Poverty rate (OECD definition)

Social safety net (percent of GDP)

Poverty and Social Spending

Sweden

United States

Canada

Germany

Australia

United 

Kingdom

Korea

Italy

Switzerland

Source: OECD latest available data; and IMF staff calculations

1/ OECD categories: Incapacity, Unemployment, and Other social policy areas
UNITED STATES

INTERNATIONAL MONETARY FUND 23

22. Falling labor force participation is an inevitable consequence of an aging society but 

those demographic effects can be mitigated. Improvements in the EITC, discussed above, will help 

encourage work. It will also be important to: 

 Adopt family-friendly benefits, particularly as 

a policy lever to slow the downward trend in 

female labor force participation. These would 

include providing means-tested support for 

childcare and introducing paid family leave in 

line with standards in ILO conventions.

 Rework the disability insurance program to 

provide incentives for beneficiaries to work parttime (rather than drop out of the labor force).

 Finally, perhaps the largest effect on the labor 

supply would come from an agreement on an immigration reform that is skill-based, changes 

the underlying demographic trends, reduces the dependency ratio, and raises the average level 

of human capital in the labor force.

23. Authorities’ views. Adverse demographic trends made supporting working families a high 

priority so as to use the U.S. labor force most effectively. The 2017 Budget proposes federal funding 

for start-up grants to assist states in introducing paid leave programs and providing federal 

employees with six weeks of paid administrative leave for the birth, adoption, or foster placement of 

a child (currently new parents who are federal employees are allowed to draw down six weeks of 

their sick leave and take twelve weeks of unpaid leave). The budget also supports increasing 

childcare subsidies for lower income families with young children and raising the child and 

dependent care tax credit (to a maximum amount of US$3,000 per child for families with children 

under age five). The administration is committed to common sense and comprehensive reform to fix 

the broken immigration system and has taken executive actions to offer relief from deportation for 

the parents of citizens or legal residents who have lived in the U.S. for more than five years.

24. Raising productivity and bridging the skill divide will be essential. Since the boom of the 

late 1990s, total factor productivity has slowed significantly. This appears to be a global trend that is 

not confined to the U.S. Notwithstanding this, public policy tools could help facilitate innovation and 

technological progress, and support efficiencies in private activity:

 Expanding infrastructure investment. The public capital stock is aging and has been declining 

as a share of GDP for some time. New investment is urgently required to improve the quality and 

reliability of infrastructure, particularly for surface transportation. This will help remove 

bottlenecks and congestion and add to the productivity of private activity. Public projects to 

upgrade infrastructure technologies (e.g. in high speed rail, ports, or telecommunications) would 

be particularly valuable. In parallel, innovative solutions should be sought to facilitate the

62

63

64

65

66

67

68

62

63

64

65

66

67

68

1990 1995 2000 2005 2010 2015 2020

Labor Force Participation Rate (percent)

Staff 

projection

Sources: BLS; and IMF staff estimates
UNITED STATES

24 INTERNATIONAL MONETARY FUND

financing (both public and private) of U.S. infrastructure. It is estimated that such investments 

could cost about 5–8 percent of GDP over the next 10 years which should be financed without an 

increase in the near-term fiscal deficit (i.e., by reallocating spending from other areas and raising 

revenues). Estimates suggest that such an expansion in infrastructure investment could boost 

potential growth by around 1⁄4 percent.

 K-12 education. There is a clear need for better spending on education so as to raise 

educational outcomes. This could include prioritizing funding for early childhood education 

(including financing of universal pre-K) and supporting science, technology, engineering, and 

mathematics programs. 

 Vocational education. Closing the skills gaps would be facilitated by greater federal support for 

state-level training as well as the expansion of partnerships between industry and higher 

education institutions to facilitate apprenticeships and vocational training.

5.0

5.5

6.0

6.5

7.0

5.0

5.5

6.0

6.5

7.0

Germany Japan USA UK Korea

2006-2007 2014-2015

Quality of Infrastructure (score 1-7 best)

Source: Global Competiveness Index, World Economic Forum

1.4

1.8

2.2

2.6

1.4

1.8

2.2

2.6

1990 1995 2000 2005 2010 2015

Public Investment, Structures (% of GDP)

Sources: BEA; Haver Analytics; and IMF staff calculations

400

430

460

490

520

400

430

460

490

520

25th Median 75th OECD USA

Average PISA Score, 2012

Sources: OECD; and IMF staff calculations

Note: PISA (Programme for International Student Assessment) 2012 tested 

students in mathematics. Sample range is 65 emerging and OECD countries

1.0

1.5

2.0

2.5

3.0

1.0

1.5

2.0

2.5

3.0

20 30 40 50 60

Spending (percent of GDP)

Attainment, 25-34 year-olds (percent)

Tertiary Education

Sweden

United States

Spain

Germany

Japan

Source: OECD latest available data

United 

Kingdom

Germany
UNITED STATES

INTERNATIONAL MONETARY FUND 25

 Trade integration. The free exchange of 

goods and services has been a hallmark of 

American economic success. New trade 

agreements, such as the Trans Pacific 

Partnership (TPP), cement and extend this 

principle by going beyond the removal of tariff 

barriers—which are already low—and include 

rules on investment, competition policy, 

intellectual property rights, and regulations. By 

preserving a level playing field in future 

growth areas, such as services, the TPP has the 

potential to set a new standard and pathway 

for international economic cooperation. It would also aid the U.S. economy by capitalizing on its 

strength in the fast growing area of tradable services. Resisting all forms of protectionism will 

also be essential. There will likely be transition costs to both jobs and incomes from greater trade 

integration as well as potential effects on income polarization. The consequences for tradeaffected U.S. workers should be taken into account and policy efforts should be taken to mitigate 

the downsides through training, temporary income support, and job search assistance, including 

deployment of the existing trade adjustment assistance program. 

25. Authorities’ views. The administration has proposed a “surge” in new infrastructure and 

clean energy investment funded through an excise on crude oil and a one-time 14 percent tax on 

unrepatriated corporate profits (as a transition to broader business tax reform). There has been 

broad recognition of the importance of education and job training to support future growth and 

productivity. The administration has already expanded grants and tax credits to increase access to 

college and had proposed making community college free for two years. There is a hope that the 

recent step to make the research and experimentation tax credit permanent could help with 

productivity. Federal funding for job training has been increased in recent years, and, in the past two 

years, 75,000 additional individuals have been enrolled into federally-supported apprenticeship 

programs. Continued efforts along these lines could help lessen the skills mismatch that is currently 

visible in the U.S. labor market. There is a strong commitment to working with Congress to pass the 

TPP and move ahead with other plurilateral trade agreements. The U.S. is committed to resisting 

financial and trade protectionism. Given that trend declines in productivity are widespread globally, 

officials noted the value of further examining the productivity slowdown from an international 

perspective.

26. Steps should also be taken to avoid self-inflicted wounds from future disagreements 

on the path for fiscal policy. Whatever gains could be achieved in supporting growth through the 

supply-side measures described above could be easily dissipated by a repetition of past political 

brinkmanship over appropriations and the debt ceiling. Near-term uncertainties have certainly been 

diminished by the passage of the Bipartisan Budget Act of 2015, the Protecting Americans from Tax

100

300

500

700

100

300

500

700

US UK Germany France China

Private Services Exports (US$ billions, 2013)

Sources: U.S. International Trade Commission; WTO; and IMF staff calculations

14% of global 

services exports
UNITED STATES

26 INTERNATIONAL MONETARY FUND

Hikes Act, and the Fixing America’s Surface Transportation Act. However, it will be important to 

identify more lasting institutional solutions. 

 One possibility would be to replace the debt ceiling with a bipartisan agreement on a clear, 

simple medium-term fiscal objective (with an integrated view of all budget functions and 

numerical goals for both debt and deficit). 

 Alternatively, a legislative process could be introduced that adjusts the debt ceiling automatically, 

consistent with whatever agreement is struck on the broader budget parameters. 

 Carefully-designed mechanisms could be built in to support fiscal discipline by triggering 

automatic revenue or spending adjustments if congressionally approved targets are breached. 

 Consideration could also be given to more permanently shifting to a budget cycle where annual 

spending levels are agreed for a two-year period (helping to divorce budget decisions from the 

electoral calendar).

27. Demographic trends and rising interest rates will lead to larger fiscal imbalances over

the medium-term. Specifically, over the next decade healthcare and social security outlays are 

expected to increase by 13⁄4 percent of GDP and interest spending will rise by 2 percent of GDP. As a 

consequence, the federal debt is forecast to begin rising in 2019 and exceed 80 percent of GDP by 

2025. Regrettably, the U.S. continues to lack a 

detailed medium-term fiscal consolidation plan to 

prevent this renewed rise in the public debt. Such a 

plan would need to target a medium-term federal 

government primary surplus of about 1 percent of 

GDP (a general government primary surplus of 

about 3⁄4 percent of GDP) which would put the 

public debt ratio firmly on a downward path. Since 

many of the policies needed to boost growth and 

tackle poverty will have fiscal implications—the 

largest of which is linked to public infrastructure 

spending—their costs should fit within this overall 

deficit envelope. 

28. Achieving this medium-term path will require actions on multiple fronts:

 Tax reform. The Joint Committee on Taxation estimates that a comprehensive reform of the U.S. 

tax system that removes exemptions, simplifies the system, and reduces statutory rates (both for 

individual and corporate income taxes)—would raise the level of real GDP by up to 1.6 percent 

over the next ten years. Reform of the corporate income tax is badly needed and could help 

revitalize business dynamism and investment (Box 6). For the personal income tax, the structure 

could be made more progressive so as to help mitigate income polarization and assist the 

working poor. This could involve capping itemized deductions, including for mortgage interest, 

to lessen the tax benefit for the most well off. Finally, as has been advocated in past 

68

72

76

80

84

68

72

76

80

84

2015 2017 2019 2021 2023 2025

Federal Debt Held by the Public

(percent of GDP, fiscal year)

Source: IMF staff estimates

Baseline

Adjustment
UNITED STATES

INTERNATIONAL MONETARY FUND 27

consultations, additional revenues should be generated through the introduction of a federal 

level VAT and a broad-based carbon tax (see 2015 Article IV), including an increase in the federal 

gas tax (which has been 18 cents per gallon since 1993).

 Pension reform. The expected depletion of the social security trust fund calls for early steps 

toward fundamental reform of the pension system. These would include raising the income 

ceiling for social security contributions, indexing benefits and contribution provisions to chained 

CPI, raising the retirement age, and instituting a greater progressivity in the benefit structure. 

 Healthcare cost containment. Healthcare inflation has come down but it appears largely linked 

to slow wage growth in the health sector (which has already started to bounce back). More is 

needed to sustainably lower the path of future healthcare costs. This could be achieved through 

better coordination of services to patients with chronic conditions, greater cost sharing with 

beneficiaries, innovations in efficiency technologies (e.g. electronic health care records, remote 

consultations with doctors, international outsourcing of some diagnostic functions), and 

changing incentives away from remuneration per procedure and toward payments for achieving 

specified health outcomes. Higher Medicare premiums would also help address financial 

imbalances in the publicly-funded health system.

29. Authorities’ views. On the tax side, the administration has argued for closing personal 

income tax loopholes for “carried interest” and to limit the value of itemized deductions and other 

tax expenditures for higher income households. They also would favor increasing the top tax rate on 

capital gains and dividends to 28 percent. The President has proposed a comprehensive, revenueneutral business tax reform that would reduce the corporate tax rate to 28 percent, eliminate dozens 

of inefficient tax expenditures, impose a 19 percent minimum tax on foreign earnings that would be 

paid currently without possibility of deferral (with no additional tax upon repatriation), and limits on 

the use of excessive interest deductions by foreign companies to strip earnings. The administration 

recognizes there are imbalances in the entitlement system and has, over time, put forward various 

measures that could be part of a “grand bargain”—to strengthen the solvency of the system. In this 

regard, it was important not to understate the important progress, in part linked to the Affordable 

Care Act, that has been made in lowering the pace of cost increase in health care (which will lessen 

the medium-term fiscal imbalances due to aging). Tackling the financing gap in the social security 

system while ensuring beneficiaries receive robust benefits was seen as an increasing priority.
UNITED STATES

28 INTERNATIONAL MONETARY FUND

Estimated Fiscal Impact of Various Policy Options 

(cumulative primary deficit change, 2017–20251) 

Infrastructure (drawing on American Society of Civil Engineers) +5 to 8

Extend EITC to childless and younger workers (JCT) +0.4

Increased funding for education and job training (CBO) +0.5

Healthcare

1% increase in payroll tax for Medicare Hospital Insurance (CBO) -3.4

Increase premiums for Parts B and D of Medicare (CBO) -1.4

Change cost sharing rules for Medicare / restrict Medigap insurance (CBO) -0.5

Manufacturers rebate for Medicare Part D drugs for low-income patients (CBO) -0.5

Social Security

Increase maximum taxable earnings for payroll tax to $180,000 in 2017; index maximum to 

chained CPI thereafter (CBO) -3.0

Indexing benefits to chained CPI (CBO) -0.8

Phased increase of full retirement age to 70 (CBO) -0.2

Extend the computation period for benefits by three years (CBO) -0.2

Tax reform

1% increase in personal income tax rates for upper-income groups (JCT) -0.4

Eliminate fossil fuel preferences (JCT) -0.2

Replace CPI with chained CPI for personal income tax brackets (CBO) -0.6

Carbon tax (2015 Article IV report ) -4 to -5

For each 1% broad based VAT (CBO) -2.4

For each 10 cents increase in federal gas tax and index for inflation (CBO) -0.5

Immigration reform (CBO) -1.5

Sources: CBO; JCT; ASCE; and IMF staff estimates

1/ Expressed as a percent of average 2017–2025 GDP.
UNITED STATES

INTERNATIONAL MONETARY FUND 29

Box 6. Reform of the U.S. Corporate Income Tax1

The shortcomings. There is bipartisan acceptance that 

the U.S. system for taxing corporate income is broken. 

The current tax structure is too complex, has a 

marginal rate that is too high and with a narrow base, 

is rife with legislated exemptions, favors debt 

financing, and incentivizes a range of cross-border 

avoidance and tax planning mechanisms to lower U.S. 

tax liabilities. Despite the well-documented distortions 

and shortcomings, and their negative implications for 

both productivity and the global competitiveness of 

U.S. businesses, reforming the system has proven 

politically impossible. 

The priorities for incremental reform:

 Reduce the corporate income tax rate to 25 percent. 

 Broaden the CIT base by eliminating the bulk of corporate tax expenditures including the Section 199 

deduction (for domestic production activities) and repeal the corporate alternative minimum tax. 

 Align depreciation allowances with rates of economic depreciation. Eliminate tax incentives for 

petroleum exploitation, including publicly traded partnerships. 

 Adopt the recommendations of Base Erosion and Profit Shifting Action 4 by limiting interest deductions 

to 10–20 percent of EBITDA for both domestic and foreign-owned firms to reduce income-stripping as 

well as debt bias.

 Adopt a territorial system by excluding dividends of foreign subsidiaries from U.S. taxation. On a goingforward basis, impose a 15 percent country-by-country minimum rent tax on the foreign earnings of 

U.S. corporations. Maintain the current system of crediting for foreign taxes paid. 

 Tax the existing stock of un-repatriated foreign-sourced earnings at a rate of 25 percent, with payments 

spread over the next 8 years. 

More fundamental reform. Over a longer horizon, the U.S. should transform its corporate tax system into a 

rent tax. This would involve allowing U.S. corporations a general capital allowance against earnings for both 

debt and equity-financed investment and then taxing the remaining rents at a lower marginal rate. Normal 

returns to capital should be taxed at the investor level including by removing the current tax exempt status 

for pension funds and endowments. Partial crediting should remain for foreign taxes paid.

1 See K. Clausing, E. Kleinbard and T. Matheson, “U.S. Corporate Income Tax Reform and Its Spillovers”, IMF 

Working Paper (2016)

0

10

20

30

40

50

60

0

10

20

30

40

50

60

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Statutory Corporate Tax Rates (percent)

France

Source: OECD

Germany

Canada

United States

Italy

U K

Japan

OECD average
UNITED STATES

30 INTERNATIONAL MONETARY FUND

A SLOW TRAIN TO “NORMAL”

30. Since the first rate increase in December, 

the predicted pace of subsequent rate increases 

has slowed (in both the FOMC and market’s 

expectations). Despite a string of strong labor 

market data, there has been concern around weak 

activity and, more recently, jobs data, recurrent 

bouts of financial market volatility, and diminishing 

global prospects. The FOMC has emphasized the 

shallow, gradual upward slope in its expected policy 

rate profile and has underlined that the federal 

funds rate is likely to remain, for some time, below 

levels that were expected to prevail in the longer 

run.

31. Wage and price inflation appears contained. Price developments have been marginally 

above staff’s expectations at the time of the last Article IV. However, wage indicators appear 

moderately softer than had been previously envisaged, despite the labor market repairing on a 

faster-than-expected timetable. Over the past 12 months, compensation growth as measured by the 

employment cost index has fallen to under 2 percent and average hourly earnings are only modestly 

higher (at 2.5 percent). Despite this, inflation outcomes are currently expected to follow a slow 

trajectory back to the central bank’s medium term target as labor market slack is steadily exhausted. 

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

1.0

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2014Q4 2015Q4 2016Q4 2017Q4 2018Q4 2019Q4 2020Q4

Core PCE Inflation (percent, yoy)

2015 AIV 

projection

Current 

projection

Sources: BEA; and IMF staff estimates

Outturns

1

2

3

4

5

1

2

3

4

5

2008 2009 2010 2011 2012 2013 2014 2015 2016

Wage Growth (percent, yoy)

Atlanta Fed wage growth tracker (3mma of median, eop)

Average hourly earnings

Employment cost index, wages and salaries

Sources: BLS; FRB; and Haver Analytics

0

1

2

3

4

0

1

2

3

4

2016Q2 2017Q2 2018Q2 2019Q2 2020Q2 2021Q2

IMF staff projection

(as at 6/17/16)

Policy Rates Expectations (percent)

Sources: Federal Reserve; Bloomberg; and IMF staff estimates

Primary Dealers Survey

(expectation range, 

as at 4/18/16)

FOMC median dots

(as at 6/15/16)

Fed funds futures

(as at 6/15/16)
UNITED STATES

INTERNATIONAL MONETARY FUND 31

Figure 2. Inflation Dynamics

Core PCE goods prices, housing, and health care 

services are the key drivers in PCE inflation. 

Leading to a slow upward path for core PCE in 

the past several months.

Core inflation has been held down by low import 

prices.

Pointing to an important role for the dollar in 

inflation dynamics.

Health care wage growth has stabilized which

likely presages increasing health care inflation. 

Shelter costs are expected to continue rising with 

the ongoing recovery in the housing market.

Sources: BEA; and IMF staff calculations

Durables

12%

Nondurables

13%

Housing

17%

Health 

care

19%

Financial

9%

Other 

core 

services

30%

Spending Composition (percent of core PCE)

-1

0

1

2

3

4

5

-1

0

1

2

3

4

5

1997 2000 2003 2006 2009 2012 2015

Core PCE Inflation (percent, yoy)

Services (excl. housing and health)

Housing

Health

Overall

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

-10

-8

-6

-4

-2

0

2

4

6

8

10

1997 2000 2003 2006 2009 2012 2015

Inflation and Import Prices (percent, yoy)

Core goods inflation (RHS)

Non-petroleum 

import prices (5Q lag, LHS)

-20

-15

-10

-5

0

5

10

15

- 8

-6

- 4

-2

0

2

4

6

8

1997 2000 2003 2006 2009 2012 2015

Import Prices and Dollar (percent, yoy)

Non-petroleum 

import prices (LHS)

NEER 

(inverted, RHS)

0

1

2

3

4

5

6

0

1

2

3

4

5

6

1997 2000 2003 2006 2009 2012 2015

Health Inflation (percent, yoy)

Employment Cost Index, health sector

Health care services prices

-10

- 8

- 6

-4

- 2

0

2

4

6

8

10

12

- 1

0

1

2

3

4

5

1997 2000 2003 2006 2009 2012 2015

Shelter Inflation (percent, yoy)

PCE housing 

prices (LHS)

Home price index 

(3Q lag, RHS)
UNITED STATES

32 INTERNATIONAL MONETARY FUND

32. Evidently, monetary policy should remain data dependent. It is also important to note 

that it will be the whole expected future path of rate movements that will be relevant for the 

macroeconomy. At this point in the cycle, there is a clear case to proceed along a very gradual 

upward path for the fed funds rate, conscious of global disinflationary trends and confirming along 

the way that wage and price inflation are indeed maintaining their steady upward momentum. 

Evidence suggests that the trade-off between slack and price pressures appears to have remained 

reasonably stable (Box 7). Staff’s own macroeconomic outlook is built on an assumption of two 

further rate increases in the second half of 2016 and the forecasted outturns for growth, inflation, 

and unemployment are broadly in line with the FOMC’s own summary of economic projections. 

Given the likelihood and severity of downside risks to inflation, the potential for a drift down in 

inflation expectations, the Federal Reserve’s dual mandate of maximum employment and price 

stability, and the asymmetries posed by the effective lower bound, the path for policy rates should 

accept some modest, temporary overshooting of the Federal Reserve’s inflation goal to allow 

inflation to approach the Fed’s 2 percent medium-term target from above. Doing so will provide 

valuable insurance against the risks of disinflation, policy reversal, and ending back at a zero fed 

funds rate (see Working Paper). The Federal Reserve should be clear in communicating its intentions 

and emphasize that its medium-term inflation goal is symmetric and that inflation could well 

approach their target from above. If either wage or price inflation becomes visible at a faster pace 

than is embedded in staff’s current forecasts, interest rates should be raised on a more front-loaded 

timetable. 

33. Authorities’ views. A healthy labor market—notwisthstanding the slowdown in job growth 

in May—and real income growth were expected to support a pickup in consumer spending, leading 

to a faster pace of GDP growth in the coming quarters. The low unemployment rate appears, at 

present, to be exerting little upward pressure on wage or price inflation. However, with consumer 

demand growth continuing, the dollar no longer appreciating and energy prices apparently having 

bottomed out, there was confidence that inflation would move steadily upward to the 2 percent 

objective in the medium run. If incoming data shows economic growth continuing to pick up, labor 

market conditions continuing to strengthen, and inflation making progress toward 2 percent, then it 

likely would be appropriate to gradually increase the federal funds rate in the coming months. 

However, incoming data would determine the timing and pace of future rate adjustments. There is 

no preset course for the policy rate. Officials indicated that the Federal Reserve’s medium term 

inflation goal should not be viewed as a ceiling and there were likely to be symmetric errors around 

the 2 percent target. However, there was no intention to engineer an overshoot the inflation 

objective and the welfare case for doing so was not compelling. There was a concern also that 

aiming to overshoot the medium-term target would create the risk of being behind the curve and 

potentially being faced with a need to raise rates more quickly especially if the labor market 

tightening led to a faster increase in inflation than seen until now. This could be disruptive and 

undermine the achievement of the Federal Reserve’s mandates of maximum employment and stable 

prices.
UNITED STATES

INTERNATIONAL MONETARY FUND 33

Box 7. Did the Global Financial Crisis Break the U.S. Phillips Curve?1

A structural break? Since the global crisis, the combination of high unemployment and a lack of wage 

deflation, followed by a period where unemployment was declining steadily without an acceleration in wage 

growth, has raised questions as to whether the nature of the unemployment-inflation trade-off has changed.

Particularly, has the Phillips curve flattened or shifted to become less responsive to “slack”? 

A multivariate approach. Using a large-cross-section Bayesian Vector Auto Regression and dynamic factor 

model that exploits a wide range of data in a flexible framework, we find that there is some evidence, postrecession, that the nature of underlying shocks to the economy has changed. However, there is little 

evidence of a change in the coefficients of the Phillips curve. In addition, corporate bond spreads are found 

to be an important predictor of unemployment2 and financial and external variables are predictive of 

inflation.

Markov-switching. A separate approach was 

deployed using a flexible, New Keynesian model that 

allows for 3-state regime switching both in the 

structure of shocks and in the model coefficients. The 

model that best fits the data is one that shows no 

change in the Phillips curve itself but a change in the 

coefficients in the monetary policy reaction function.

This change in the reaction function induces a shift in

the time series variance-covariance structure between 

inflation and unemployment. The Phillips curve has, 

according to these results, not broken. Rather,

describing recent dynamics needs a structural model

that allows for a shift in the monetary policy reaction 

function in order to best explain the post-financial 

crisis changes in the structure of correlations seen in the data. Estimating a single equation Phillips curve, 

without allowing for such changes in the policy reaction function, would make it erroneously appear as if the

Phillips curve itself has tilted downwards. 

1 See Laseen, S. and Taheri Sanjani, M., “Did the Global Financial Crisis Break the U.S. Phillips Curve?”, IMF Working 

Paper (2016) 

2 See Gilchrist and Zakrajsek (2010) “Credit Spreads and Business Cycle Fluctuations”, NBER Working Paper 17021.

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

-2 -1 0 1 2 3 4 5

Core PCE inflation gap (yoy) 1/

Unemployment gap 1/

Phillips Curve Shift, 1992-2015 (percent)

Sources: BEA; CBO; Department of Commerce; FRB; and IMF staff calculations

1/ Unemployment gap uses CBO’s NAIRU; PCE gap uses SPF 10yr expectations

Structural Phillips Curve (pre-GFC)

Structural Phillips Curve (post-GFC) 
UNITED STATES

34 INTERNATIONAL MONETARY FUND

KEEPING THE FINANCIAL SYSTEM SAFE

34. Regulatory reforms, improved risk management practices, and changing business 

practices have strengthened the U.S. banking 

system. Compared to European and Asian peers, 

U.S. banks have stronger portfolios and are 

considerably more profitable. However, net interest 

margins remain compressed and corporate credit 

risk is rising (although the latter deterioration has 

been largely concentrated in energy and mining 

where the banking system as a whole has only a 

modest exposure). A small number of non-systemic 

banks with a high portfolio concentration in 

distressed sectors (notably energy and mining) are 

likely to see increases in loan losses. Furthermore, a 

potential worsening of credit quality for auto and commercial real estate loans could create a 

broader increase in provisioning needs. All in all, though, these downsides represent pockets of 

vulnerability but are unlikely to prove systemic. Banks will continue to face a lower profit 

environment going forward but regulatory levers and market discipline appear to be in place to 

prevent efforts to restore profitability translating into weaker lending standards.

35. Intermediation activity is further migrating from banks to nonbanks and is likely to 

continue to do so as policy rates increase. This argues for caution, including in assessing the 

effects of higher policy rates on overall risk (Box 8). For instance, mortgage origination and servicing 

have, to a large extent, moved off of bank balance sheets into specialized entities that sell the loans 

for eventual securitization by government sponsored agencies. As the structure of the housing 

finance industry evolves, the associated risks bear close examination. Retail deposits have, so far, 

remained in the banks but, as rates rise, money market funds offering higher returns could 

increasingly pull funding from the banks (which are constrained by regulatory liquidity measures and 

the costs of deposit insurance). 

-2.4

-1.8

-1.2

-0.6

0.0

0.6

1.2

-40

-30

-20

-10

0

10

20

United 

States

France Germany Italy Euro 

area

Japan

Bank Health and Prosperity (percent) 1/

Sources: Bloomberg; EBA; and IMF staff calculations

1/ Data is as of 2015 or latest available

NPLs / Total assets

ROA (RHS)

Max. share price change (2016Q1 market volatility)
UNITED STATES

INTERNATIONAL MONETARY FUND 35

Box 8. Securitization and Monetary Policy: Watch Out for Unintended Consequences

The approach. An empirical exercise was undertaken using a proxy-VAR drawing on flow of funds data to 

trace through the effects of higher policy rates on credit flows in different parts of the financial system1. 

The role of securitization. Estimates suggest that a monetary policy tightening does act as a liquidity shock 

for banks that (temporarily) raises their costs of funds and puts pressure on bank profits, cash flow, and 

liquidity. As a result, banks cut 

back on credit creation. 

However, since securitization 

provides a source of funding 

and liquidity, it also appears

that a higher federal funds 

rate causes U.S. banks to 

liquefy part of their assets 

(mostly mortgages) and 

expand lending through 

securitization. Specifically, a 

monetary policy tightening 

causes the total supply of 

mortgages and the 

securitization of conforming 

(i.e., GSE) mortgage loans to

fall. However, higher policy 

rates result in an increase in 

private-label asset backed 

mortgage securities. In 

addition, the GSEs themselves 

expand lending to the Federal 

Home Loan Bank system.

Implication. The evidence suggests that higher policy rates do “get in the cracks” with broad effects on the 

financial system but that they do so in very uneven ways. Specifically, our analysis suggests that different 

forms of financial intermediation do not react in a uniform way to policy rate shocks. As policy is tightened,

financial activity migrates from bank balance sheets to the less-well monitored non-bank sector (including 

via securitization). In the current context, this channel for disintermediation poses a lower risk than in the 

past, given the subdued private-label securitization activity. However, in the aftermath of the global financial 

crisis, new channels of credit creation have opened up in the nonbank sector (including ETFs and asset 

management vehicles) so that the overall impact of monetary policy decisions on financial risks and activities 

is far from clear.

1 See Pescatori, A., and J. Sole “Credit, Securitization and Monetary Policy: Watch Out for Unintended 

Consequences”, IMF Working Paper 16/76 (2016).

Bank Mortgages

2 4 6 8 10 12

-0.6

-0.4

-0.2

0

0.2

0.4

GSE Mortgages

2 4 6 8 10 12

-0.8

-0.6

-0.4

-0.2

0

0.2

Private Label Asset-backed Securities

2 4 6 8 10 12

-0.5

0

0.5

1

1.5

GSE Mortgage Pools

2 4 6 8 10 12

-2.5

-2

-1.5

-1

-0.5

0

0.5

Impact of Higher Policy Rate on Mortgage Credit
UNITED STATES

36 INTERNATIONAL MONETARY FUND

36. Many of the policy recommendations for the nonbanks made during the 2015 IMF 

Financial Sector Assessment Program remain pertinent today, but have not been implemented 

(Annex II). Two areas are particularly worth reiterating:

 Asset managers. On-demand vehicles (such as mutual funds) that are ultimately invested in lessliquid fixed income assets have the potential to create market instability due to liquidity 

mismatches and redemption or first-mover risks. As one indicator, the share of less liquid 

corporate and foreign bonds held by mutual funds has doubled since 2009, to 21 percent. 

Regulation is currently being explored to tackle these risks. However, to adequately analyze the 

evolution of interconnections, exposures, and potential buildup of risks among asset managers, 

there is a strong case to accelerate the work on building a more complete and transparent data 

landscape of the asset management industry. This should go hand in hand with a structured 

effort to implement comprehensive stress testing programs for the asset management industry 

that focus on liquidity and counterparty risks.

 The life insurance industry. The life insurance sector intermediates 30 percent of GDP in assets 

that are leveraged. The low-interest rate environment and market pressures to maintain returns 

at a sufficient level have forced firms to change asset composition (toward nontraditional asset 

classes, private equity, and lower-rated fixed income) and compete on the liability side (through 

an increase in unit-linked and guaranteed-return products). However, there is a lack of clarity, at 

an overall portfolio level, of the underlying risk profile of the life insurance industry and how it 

has evolved (Box 8), and the absence of harmonized national standards or consolidated 

supervision makes any assessment of risks in the industry necessarily tentative and incomplete. A 

coordinated, nationally consistent approach to regulation (particularly valuation and solvency 

requirements), supervision, and stress testing is needed with regulatory oversight assigned to an 

independent agency with a nation-wide mandate, operational independence, and appropriate 

powers and accountability. For designated institutions, enhanced prudential standards should be 

implemented without further delay.

37. Authorities’ views. Leverage in the system on average does not appear high and risks 

appear manageable. However, supervisors were closely watching risks associated with the 

concentration of leverage and deteriorating credit quality in certain parts of the system. Over the 

past few years there has been a clear recognition of the financial stability concerns that may arise 

from liquidity and redemption risks in pooled investment vehicles (particularly mutual funds that 

invest in less liquid assets). Work is now underway to improve liquidity management practices, 

reporting and disclosure for mutual funds and to impose limits on a fund’s ability to hold assets with 

very limited liquidity. While the structure of financial markets is evolving, markets have weathered 

well the dislocations in the beginning of the year, indicating that market participants have been 

adapting to the new environment. Efforts were ongoing to better understand the structure of 

different markets and how they interact. Steps were being taken to build a better database on cash 

treasury markets, enhance data collection and reporting on securities lending and repos, and form an 

interagency working group to examine the potential risks to financial stability from hedge fund 

activity. There was shared concern that regulators do not have a complete picture of the risks being 

taken in the nonbank system. The Securities and Exchange Commission is developing proposed rules 
UNITED STATES

INTERNATIONAL MONETARY FUND 37

to enhance the regulatory framework over the U.S. asset management industry, which includes 

enhanced reporting and risk management requirements, limits to leverage, and—for registered 

investment companies sand advisers—transition planning to address a potential major disruption in 

their business. Separately, the alignment of repo and triparty settlement has eliminated intraday 

credit risk, thereby completing the triparty repo reform. There was increased concern on the 

operational risks to the financial system from a serious failure in either a market’s or an individual 

entity’s cyber security protections, an interagency collaboration was underway to better understand 

and address these risks.

38. Important gains have been made in strengthening the financial oversight structure. 

Over the past several years a series of decisive measures were put in place to lessen the potential for 

financial stability risks, including enhanced capital and liquidity requirements, better underwriting 

standards in the housing sector, greater transparency to mitigate counterparty risks, and limits on 

proprietary trading. The Dodd Frank Act requirements have stimulated supervisory intensity, with 

increased emphasis on banks’ capital planning, stress testing, and corporate governance. The Federal 

Reserve’s Comprehensive Capital Analysis and Review process has proven to be particularly valuable. 

Further important regulatory measures have been, or are being, implemented including liquidity risk 

requirements for money market and mutual funds; standardization of derivatives products and 

markets; measures that reduce banks’ medium term asset-liability mismatch (through the net stable 

funding ratio), and a framework for bank recovery and resolution (i.e., rules on living wills and bailinable debt).

39. These improvements in financial oversight need to be preserved. Eight years after the 

inception of the financial crisis, political support behind the reform of the financial system has clearly 

ebbed and there is a danger that the indispensable progress that has been made may stall or be 

rolled back. Of course, it is natural to recalibrate some aspects of the oversight system as changes 

are seen in action. Nevertheless, it will be important to oppose any wholesale or broad-based efforts 

to dilute the provisions of the Dodd-Frank Act.

40. Authorities’ views. There is a strong commitment to continue to strengthen efforts to 

monitor potential risks and emerging threats to financial stability. Changes to the structure and 

practice of financial system oversight since the financial crisis have served to make the system 

stronger, safer, and more resilient. Future changes to the regulatory structure will continue to be 

driven by data and evidence-based analysis and will involve broad collaboration among the various 

regulators under the umbrella of the Financial Stability Oversight Council. However, as the memory 

of the financial crisis fades, there was a risk that some may want to let the guard down on financial 

reform. Nevertheless, the administration was committed to ensuring that efforts to roll back the 

Dodd-Frank Act would be resisted.
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38 INTERNATIONAL MONETARY FUND

Box 9. Developments in the U.S. Life Insurance Sector

Assets. U.S. life insurers’ investment portfolios have changed considerably over time with a declining 

presence of mortgages and rising investments in direct lending, equity, mutual funds, and hedge fund 

investments. At the same time, average duration has risen and life insurers are now more sensitive to 

abrupt increases in interest rates (although a slow rise in rates would benefit the industry). However, 

given the inability of having a clear portfolio view of the asset side of the sector, and the correlations 

among asset classes, it is difficult to assess the extent to which credit, liquidity, and market risk of the 

sector has changed over time. 

Liabilities. U.S. life insurers have increased the share of insurance products that have higher 

guarantees or early withdrawal features. As a result, exposure has risen to lapse-induced liquidity risk 

(with lapse rates between 4 and 7 percent across large firms). In the event that liquidity shortages give 

rise to asset liquidation in volatile markets, the market liquidity risk that is being borne by the life 

insurance industry on the liability side has likely risen. 

Oversight and supervision. Insurance supervision has been strengthened by bringing it under the 

oversight of the FSOC and creating the Federal Insurance Office. However, the regulatory system 

remains fragmented at the state level (despite the ongoing internationalization and globalization of the 

industry) and Federal Reserve oversight of the systemic insurance groups is still being developed.

0

20

40

60

80

100

0

20

40

60

80

100

1990 1995 2000 2005 2010 2015

Portfolio Composition (percent of assets)

Debt securities excl. bonds

Other

Equities, ETFs, and mutual funds

Mortgages

Corporate and foreign bonds

Sources: Federal Reserve Board; and IMF staff calculations

24

26

28

30

32

34

36

2.0

2.5

3.0

3.5

4.0

4.5

5.0

2004 2006 2008 2010 2012 2014

Investments (percent of assets/liabilities)

Source: IMF GFSR April 2016

1/ Incl. direct lending, investment banking, and mutual & hedge fund investment

Unit-linked products (RHS)

Non-traditional non-insurance assets (LHS) 1/
UNITED STATES

INTERNATIONAL MONETARY FUND 39

41. The withdrawal of correspondent banking relationships has created spillover risks for 

some countries, particularly those that are unable to substitute to other financial connections 

in a timely manner. As in other jurisdictions, a number of globally active U.S. banks have been 

reducing their correspondent banking relationships with counterparts in a range of countries. There 

is a confluence of factors potentially driving this phenomenon—including shortcomings in the 

AML/CFT framework in recipient countries, higher supervisory scrutiny, the changing global 

economic environment, profitability concerns, low margins in correspondent banking, changing 

liquidity and capital requirements, a broader reorientation of bank business models, insufficient 

regulatory clarity, reputation concerns of the banks, possible conflicts in regulations (e.g. with data 

privacy laws), and economies of scale in compliance. On the U.S. side, the legal framework for 

sanctions, AML/CFT, and tax information sharing appears to be applied in a manner that is 

proportional to the seriousness of the violation. Nevertheless, regulators should continue their 

investments in outreach and in the ongoing clarification of regulatory expectations. While the riskbased regulatory approach should strive to provide more clarity, there should be no expectation that 

U.S. regulators and enforcement agencies are able to offer either certainty or “safe harbor”. The U.S. 

should continue its efforts to assist recipient countries to build capacity and work with other 

jurisdictions to foster global and bilateral solutions to data privacy impediments. Adherence to the 

international standards on AML/CFT and the sharing of tax information would help to alleviate 

concerns about the adequacy of controls at recipient institutions. It is worth exploring mechanisms 

for U.S. financial intermediaries to lessen the fixed costs of compliance and risk management by 

pooling resources and exploiting economies of scale (e.g. utilizing specialist transfer and clearing 

services, building common platforms, and sharing information on clients). There may also be scope 

for U.S. banks to vary more the risk-pricing of correspondent services so as to factor compliance 

costs into their fee structure and make the risk-return profile more efficient (see Box 10 and Staff 

Discussion Note).

42. Authorities’ views. Due to the prevalence of U.S. banks in global finance, their withdrawal 

from certain correspondence banking relationships has affected certain jurisdictions. The U.S. 

remains fully committed to continuing outreach and supporting capacity building in recipient 

countries. Recent studies on the impact of withdrawal from corresponding banking relationships on 

remittances flows and U.S. dollar clearing have given mixed results so the causes and effects are still 

unclear. Regulators noted the increased use of consent orders by U.S. supervisors and the 

Department of Justice and the broad intentions to resolve violations with remedial measures taken by 

financial institutions. Regulators’ principle focus was to ensure that internal controls were 

appropriate and proportional to the risks of the institutions’ operations. Indeed, the supervisors’ 

preference was for these activities to remain within the regulated financial system but with 

institutions having appropriate risk-based controls in place.

43. A more structured, uniform and complete solution is needed to the current lack of 

transparency in beneficial ownership in the U.S. A lack of information on the beneficial 

ownership and control of U.S. corporations and trusts has given rise to loopholes for criminal 

financial activities, including domestic and foreign based tax evasion. The U.S. authorities recently
UNITED STATES

40 INTERNATIONAL MONETARY FUND

issued regulations to strengthen the requirements for U.S. financial institutions to identify and verify 

beneficial owners of the companies whose accounts they maintain. They also proposed regulations 

requiring foreign owned, single member companies to provide ownership information to the tax 

authorities. However, given that corporate registration and trusts are governed by the states under a 

variety of statutes, a complete solution will require federal legislation to make beneficial ownership 

information readily available to regulatory and law enforcement bodies. 

44. Authorities’ views. Treasury officials underlined the importance they attach to ensuring a 

more transparent and uniform approach to making available beneficial ownership information. They 

indicated that that the leaks from the Mossack Fonseca law firm had highlighted the globally 

widespread use of corporate entities and trusts to avoid and evade taxes and to conceal corrupt 

practices. Officials indicated that the issue of global tax avoidance and evasion was a huge problem 

that necessitated both international cooperation and a multilateral solution. Transactions structured 

solely around tax avoidance undermined public confidence in the tax system and violated the basic 

principle of making sure that everyone pays their fair share. New Treasury regulations will help and 

the administration was committed to working with congress to legislate steps to provide regulators 

with the information they needed to undertake their statutory obligations.
UNITED STATES

INTERNATIONAL MONETARY FUND 41

Box 10. Withdrawal of Correspondent Bank Relationships

Trends and implications. Many globally active banks, including those based in the U.S., have been 

scaling back correspondent banking relationships (CBRs). While the number of such relationships has 

been declining, there are indications that the volume of correspondent activity continues to rise. 

Nevertheless, prospective shifts in CBRs could impair cross-border financial intermediation (including 

remittance transfers or trade finance), limit the provision of financial services to certain jurisdictions, 

and cause customers and/or activities to migrate to areas with lower regulatory and supervisory 

visibility and control. 

Multiple drivers. The forces leading to this rearrangement of CBRs have included:

 A broader realignment of bank business models as a result of changes to capital and liquidity 

rules, the requirement for foreign banks to establish bank holding companies in the U.S., a 

structural decline in profitability of various business lines, and significant fixed costs for the 

banks associated with maintaining a compliant, risk-based approach to correspondent 

activities;

 Increasing economic, financial and reputational risks facing banks from undertaking certain 

forms of cross-border activities, particularly those that bear the risk of both supervisory and 

criminal enforcement actions for the violation of rules on money laundering, financing of 

terrorism, tax evasion, sanctions programs, or intermediating the proceeds of narcotics 

trafficking; 

 Tighter post-crisis regulation and broader reporting requirements (including those related to 

AML/CFT) that require investments in transaction monitoring systems, processes to flag, 

examine and report suspicious transactions, customer due diligence, and the maintenance of 

transaction records; and

 Conflict of regulations such as those that arise from data privacy constraints on cross-border 

information sharing on the transactions in respondent banks and prevent U.S. based banks 

from undertaking the needed due diligence with their foreign bank clients.

Regulatory clarity. On balance, the U.S. regulations while complex appear clear and generally well 

understood by most global banks, particularly those with a sizeable U.S. footprint. However, some 

global banks headquartered in Europe argued that regulations were inconsistently communicated and 

unevenly implemented, asking for more regulatory clarity. To their credit, the U.S. authorities have 

undertaken extensive outreach and education efforts, particularly to foreign jurisdictions and 

internationally active banks. This has included placing in the public domain supervisory manuals, case 

law, implementing regulations, and outreach presentations. 

A risk-based approach. The U.S. regulators and enforcement agencies have been clear that they are 

looking for adequate systems (in terms of compliance function and internal audits) to manage the risks 

the financial institutions face. The regulators are not advising the discontinuance of activities but would 

prefer the risks are, instead, managed and the activity is maintained within the regulated financial 

system. There appears a proportional process of escalation from supervisory involvement, to 

enforcement action, and eventually prosecution or sanctions, with most cases being resolved with 

remedial measures. The oft-cited cases with large fines have involved egregious, widespread, repeated 

and systemic violations of either sanctions rules or the Bank Secrecy Act. Most banks appear to be 

assessing CBRs against their risk-return profile, and on a case-by-case rather than wholesale basis. 
UNITED STATES

42 INTERNATIONAL MONETARY FUND

Box 10. The Evolution of U.S. Correspondent Bank Relationships (concluded)

Policy options:

 U.S. regulators should continue their investments in outreach, the clarification of regulatory 

expectations, and building understanding of the underlying standards relating to AML/CFT, 

sanctions, tax issues, and narcotics-linked transactions. 

 The U.S. should continue its efforts to assist recipient countries to build capacity.

 The U.S. should continue to work with other jurisdictions to foster global and bilateral solutions 

to data privacy impediments such as helping to structure carve-outs to local privacy laws that 

allow for information by other jurisdictions and banks sharing on a narrow set of regulatory 

questions (as recently was undertaken with Mexico). 

 Full compliance with international standards on AML/CFT frameworks or the sharing of tax 

information by other jurisdictions and banks will only help to mitigate the risks U.S. banks face 

and help alleviate concerns about the adequacy of controls at recipient institutions.

 There may be mechanisms for U.S. financial intermediaries to lessen the fixed costs of 

compliance and risk management by pooling resources, utilizing specialist transfer and clearing 

services, building common platforms, and sharing information on clients. This could be 

particularly valuable for small states that are on the recipient side but lack scale in their 

transactions.

 There may also be scope for U.S. banks to vary more the pricing of correspondent services to 

factor compliance costs in their fee structure and make the risk-return profile more attractive.
UNITED STATES

INTERNATIONAL MONETARY FUND 43

STAFF APPRAISAL

45. Growth and inflation. While the pace of the expansion has disappointed over the past few 

quarters this is a temporary setback and there are signs healthy growth rates are already resuming in 

the second quarter. As remaining slack is eroded, and employment continues to expand, wage and 

price inflation should begin to rise, helping to raise average living standards and reverse some of the 

loss in labor share of income.

46. External assessment. The U.S. external position is moderately weaker than implied by 

medium-term fundamentals and desirable policies. Over the medium term, fiscal consolidation and 

policies to raise productivity, increase the labor force, and raise saving will help maintain external 

stability while achieving full employment.

47. Supply-side trends. Although near-term prospects for growth are good, over a longer 

horizon the U.S. is likely to confront significant complications associated with a confluence of factors: 

aging demographics, polarization of the income and wealth distribution, low productivity, declining 

labor force participation, a falling labor share of income, compromised dynamism, and high levels of 

adult and child poverty. Some of these reflect global trends and are likely to have common causes.

48. Supply-side policies. The interlinked and complex nature of the supply-side trends facing 

the U.S. economy mean that reversing them will require efforts on multiple fronts. These include 

protections for low income households (through a combination of a higher federal minimum wage, 

more generous earned income tax credit, and a better safety net), a range of benefits to incentivize 

work and support families, and efforts linked to infrastructure, education, and trade to raise 

productivity. Policymakers must recognize there is significant uncertainty about how the various 

possible policy prescriptions will interact. Also, many of the solutions are legislative in nature and will 

necessitate building a wide social consensus and congressional action. Efforts to foster broad-based 

political support and to seek out common ground will be essential. If implemented, though, such 

measures will not only support U.S. economic well-being but, almost universally, have positive 

spillover implications for the global economy.

49. Fiscal policy. Congressional action over the past year has reached a compromise on fiscal 

policies that provides the right amount of fiscal support to the U.S. economy. However, those 

agreements last only until 2017 and efforts can no longer be deferred on tackling the medium-term 

problems facing the budget. Fortunately, the options to achieve the needed adjustment are many 

and can accommodate the needed reduction in the medium-term deficit and also fund the 

additional fiscal measures to support higher potential growth and diminish poverty. 

50. Monetary policy. The Federal Reserve should remain data dependent. There is a clear case 

to proceed along a very gradual upward path for the fed funds rate. Given the likelihood and severity 

of downside risks to inflation, the potential for a drift down in inflation expectations, the Federal

Reserve’s dual mandate of maximum employment and price stability, and the asymmetries posed by 

the effective lower bound, the path for policy rates should accept some modest, temporary 
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44 INTERNATIONAL MONETARY FUND

overshooting of the Federal Reserve’s inflation goal to allow inflation to approach the Federal 

Reserve’s 2 percent medium-term target from above.

51. Macrofinancial policies. While there are pockets of financial sector vulnerabilities they are 

unlikely to prove systemic. Nevertheless, there are serious data gaps across various parts of the 

nonbank system which make it impossible to assess the degree of leverage, vulnerabilities and 

interconnections in the broader financial system. Work should focus on building a more complete 

and transparent data landscape of the nonbanks. The administration should oppose any attempt to 

significantly dilute or backtrack on the important progress made in strengthening the resilience of 

the financial system. 

52. It is recommended that the next Article IV consultation take place on the standard 12-month 

cycle. 
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INTERNATIONAL MONETARY FUND 45

2015 2016 2017 2018 2019 2020 2021

National production and income

Real GDP 2.4 2.2 2.5 2.3 2.0 1.9 2.0

Net exports 2/ -0.6 -0.3 -0.5 -0.3 -0.2 -0.2 -0.1

Total domestic demand 3.0 2.4 2.9 2.5 2.2 1.9 2.0

Private final consumption 3.1 2.7 2.7 2.3 2.0 2.0 2.0

Public consumption expenditure 0.4 1.2 1.4 1.4 1.5 1.0 1.3

Gross fixed domestic investment 3.7 2.4 4.3 3.8 3.1 2.5 2.3

Private fixed investment 4.0 2.5 5.0 4.2 3.1 2.3 2.2

Equipment and software 3.1 0.5 4.4 3.8 3.1 2.4 2.4

Intellectual property products 5.7 2.0 4.1 3.8 3.1 2.4 2.0

Nonresidential structures -1.5 -1.9 4.2 3.4 2.2 1.8 2.2

Residential structures 8.9 10.0 7.3 5.9 3.7 2.4 2.0

Public fixed investment 2.3 2.2 1.3 1.7 3.1 3.8 3.1

Change in private inventories 2/ 0.2 0.0 0.1 0.1 0.0 0.0 0.0

Nominal GDP 3.5 3.2 4.4 4.6 4.2 4.0 4.2

Personal saving rate (% of disposable income) 5.1 5.4 5.1 4.7 4.4 4.5 4.6

Private investment rate (% of GDP) 16.8 16.7 17.1 17.3 17.3 17.3 17.4

Unemployment and potential output

Unemployment rate 5.3 4.9 4.8 4.6 4.7 4.9 5.1

Labor force participation rate 62.6 62.8 62.9 62.7 62.5 62.3 62.1

Potential GDP 1.8 1.9 1.9 1.9 2.0 2.0 2.0

Output gap (% of potential GDP) -1.1 -0.8 -0.3 0.2 0.2 0.1 0.0

Inflation

CPI inflation (q4/q4) 0.4 1.1 2.5 2.6 2.4 2.4 2.3

Core CPI Inflation (q4/q4) 2.0 2.2 2.4 2.5 2.4 2.4 2.3

PCE Inflation (q4/q4) 0.5 1.0 2.2 2.3 2.1 2.1 2.0

Core PCE Inflation (q4/q4) 1.4 1.8 2.1 2.2 2.1 2.1 2.0

GDP deflator 1.0 1.0 1.8 2.2 2.2 2.1 2.2

Interest rates (percent)

Fed funds rate 0.1 0.5 1.0 1.8 2.6 2.9 2.9

Three-month Treasury bill rate 0.1 0.3 0.8 1.6 2.4 2.7 2.7

Ten-year government bond rate 2.1 1.9 2.2 2.8 3.1 3.3 3.3

Balance of payments

Current account balance (% of GDP) -2.6 -2.9 -3.5 -3.8 -4.0 -4.0 -4.1

Merchandise trade balance (% of GDP) -4.2 -4.3 -4.6 -4.7 -4.8 -4.8 -5.0

Export volume (NIPA basis, goods) -0.2 1.2 5.8 6.1 5.3 5.1 3.9

Import volume (NIPA basis, goods) 4.8 3.2 8.2 6.4 5.6 5.6 5.1

Net international investment position (% of GDP) -41.0 -44.2 -47.9 -51.7 -55.8 -59.4 -63.0

Saving and investment (% of GDP)

Gross national saving 18.8 17.6 16.9 16.8 16.7 16.7 16.7

General government -1.1 -1.3 -1.1 -0.9 -1.1 -1.1 -1.2

Private 19.9 18.9 18.0 17.8 17.8 17.9 17.9

Personal 3.8 4.1 3.8 3.5 3.3 3.4 3.4

Business 16.1 14.8 14.2 14.2 14.5 14.5 14.5

Gross domestic investment 20.2 20.1 20.4 20.6 20.7 20.7 20.8

Private 16.8 16.7 17.1 17.3 17.3 17.3 17.4

Public 3.4 3.4 3.3 3.3 3.3 3.4 3.4

Sources: BEA; BLS; FRB; Haver Analytics; and IMF staff estimates

1/ Components may not sum to totals due to rounding

2/ Contribution to real GDP growth, percentage points

Table 1. Selected Economic Indicators 1/

(percentage change from previous period, unless otherwise indicated)

Projections
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46 INTERNATIONAL MONETARY FUND

2015 2016 2017 2018 2019 2020 2021

Real exports growth

Goods and services 1.1 1.8 5.4 5.4 4.8 5.0 4.4

Goods -0.2 1.2 5.8 6.1 5.3 5.1 3.9

Services 4.0 3.0 4.6 4.2 4.0 4.7 5.2

Real imports growth

Goods and services 4.9 3.4 7.5 5.9 5.2 5.1 4.2

Goods 4.8 3.2 8.2 6.4 5.6 5.6 5.1

Nonpetroleum goods 5.3 3.1 9.0 7.3 6.3 6.1 5.5

Petroleum goods 1.7 5.5 -0.1 -2.4 -2.1 -0.6 1.0

Services 5.6 4.1 4.4 3.6 3.6 2.6 0.1

Net exports (contribution to real GDP growth) -0.6 -0.3 -0.5 -0.3 -0.2 -0.2 -0.1

Nominal exports

Goods and services 12.6 12.1 12.2 12.2 12.3 12.5 12.6

Nominal imports

Goods and services 15.5 15.1 15.4 15.5 15.6 15.8 15.8

Current account

Current account balance -2.6 -2.9 -3.5 -3.8 -4.0 -4.0 -4.1

Balance on trade in goods and services -2.8 -2.9 -3.2 -3.2 -3.2 -3.2 -3.1

Balance on income 0.2 0.0 -0.3 -0.6 -0.8 -0.8 -1.0

Capital and Financial Account

Capital account balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Financial account balance -1.1 -2.4 -3.5 -3.8 -4.0 -4.0 -4.1

Direct investment, net -0.2 0.4 0.4 0.2 0.4 0.4 0.3

Potrfolio investment, net -0.5 -2.9 -3.8 -4.2 -4.4 -3.9 -3.7

Financial derivatives, net -0.1 0.0 -0.1 -0.2 -0.1 -0.1 -0.1

Other investment, net -0.2 0.0 0.1 0.3 0.1 -0.3 -0.6

Reserve assets, net 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Errors and Omissions 1.5 0.5 0.0 0.0 0.0 0.0 0.0

Net International Investment Position -41.0 -44.2 -47.9 -51.7 -55.8 -59.4 -63.0

Direct investment, net 2.2 3.9 5.4 6.1 7.3 8.5 9.4

Potrfolio investment, net -39.7 -44.9 -50.4 -56.5 -62.5 -66.0 -68.2

Financial derivatives, net 0.3 0.3 0.3 0.3 0.3 0.3 0.3

Other investment, net -5.9 -5.5 -5.0 -3.5 -2.8 -3.9 -6.2

Reserve assets, net 2.1 2.0 2.0 1.9 1.8 1.7 1.7

Memorandum items

Current account balance (US$ billions) -463 -531 -669 -760 -839 -870 -938

Non-oil trade balance (% of GDP) -2.4 -2.6 -2.9 -3.0 -3.0 -3.0 -3.0

Foreign real GDP growth (%, ar) 2.2 2.2 2.5 2.7 2.8 2.8 2.8

U.S. real GDP growth (%, saar) 2.4 2.2 2.5 2.3 2.0 1.9 2.0

U.S. real total domestic demand growth (saar) 3.0 2.4 2.9 2.5 2.2 1.9 2.0

Sources: BEA; FRB; Haver Analytics; and IMF staff estimates

Table 2. Balance of Payments

(annual percent change unless otherwise indicated)

Projections

(% of GDP)
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INTERNATIONAL MONETARY FUND 47

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Federal government

Revenue 17.6 18.2 18.2 18.2 18.1 18.0 18.1 18.1 18.0 18.0 18.1 18.2

Expenditure 20.9 20.8 21.1 20.9 20.6 21.1 21.3 21.5 22.0 22.1 22.0 22.4

Non-interest 19.5 19.6 19.8 19.5 19.1 19.4 19.5 19.6 20.0 19.8 19.6 19.9

Interest 1.3 1.3 1.3 1.4 1.5 1.6 1.8 1.9 2.1 2.3 2.4 2.5

Budget balance 1/ -3.3 -2.6 -3.0 -2.8 -2.5 -3.0 -3.2 -3.4 -4.0 -4.0 -3.9 -4.3

Primary balance 2/ -1.9 -1.3 -1.6 -1.4 -1.0 -1.4 -1.4 -1.6 -1.9 -1.8 -1.5 -1.8

Primary structural balance 3/ 4/ -1.5 -1.1 -1.4 -1.3 -1.1 -1.4 -1.5 -1.5 -1.9 -1.7 -1.5 -1.8

 Change 1.0 0.4 -0.3 0.1 0.2 -0.4 0.0 -0.1 -0.4 0.2 0.2 -0.3

Federal debt held by the public 74.4 73.6 76.0 76.0 75.6 75.9 76.4 77.0 78.1 79.2 80.2 81.5

General government

Revenue 31.4 31.7 31.8 31.7 31.7 31.7 31.8 31.8 31.9 32.0 32.1

Expenditure 35.6 35.1 35.6 35.3 35.1 35.4 35.5 35.7 36.0 35.9 35.8

 Net interest 2.0 1.9 1.9 1.9 2.0 2.1 2.2 2.4 2.6 2.8 2.9

Net lending 1/ -4.1 -3.4 -3.8 -3.6 -3.4 -3.7 -3.7 -3.9 -4.1 -4.0 -3.7

Primary balance 2/ -2.1 -1.5 -1.9 -1.7 -1.4 -1.5 -1.5 -1.5 -1.5 -1.2 -0.8

Primary structural balance 3/ 4/ -1.7 -1.0 -1.6 -1.5 -1.4 -1.6 -1.5 -1.5 -1.5 -1.2 -0.8

 Change 0.5 0.7 -0.5 0.1 0.1 -0.2 0.1 0.0 0.0 0.3 0.3

Gross debt 104.9 105.7 107.9 107.8 107.4 107.5 107.7 107.8 108.2 108.4 108.5

incl. unfunded pension liab. 123.2 125.4 127.8 127.8 127.6 127.9 128.2 128.6 129.1 129.5 129.7

Memorandum items

Federal government deficit

President's FY2017 Budget -2.8 -2.5 -3.3 -2.6 -2.3 -2.6 -2.4 -2.4 -2.8 -2.7 -2.5 -2.7

CBO budget assessment -2.8 -2.5 -2.9 -2.2 -1.9 -2.5 -2.7 -2.9 -3.4 -3.4 -3.2 -3.5

CBO baseline (current law) -2.8 -2.5 -2.9 -2.8 -2.7 -3.4 -3.7 -3.9 -4.4 -4.4 -4.3 -4.6

Federal government debt

President's FY2017 Budget 74.4 73.7 76.5 76.5 76.1 76.1 75.8 75.5 75.5 75.4 75.2 75.2

CBO budget assessment 74.1 73.6 75.4 74.9 74.1 74.1 74.3 74.4 75.0 75.7 76.1 76.7

CBO baseline (current law) 74.4 73.6 75.4 75.5 75.4 76.2 77.2 78.3 79.8 81.2 82.4 83.9

Sources: Congressional Budget Office; Office of Management and Budget; and IMF staff estimates

1/ Includes staff's adjustments for one-off items, including costs of financial sector support

2/ Excludes net interest

3/ Excludes net interest, effects of economic cycle, and costs of financial sector support

4/ Percent of potential GDP

Note: Fiscal projections are based on the March 2016 Congressional Budget Office baseline adjusted for the 

IMF staff’s policy and macroeconomic assumptions. The baseline incorporates the key provisions of the 

Bipartisan Budget Act of 2015, including a partial rollback of the Sequester spending cuts in fiscal year 2016. 

In fiscal years 2017 through 2021, the IMF staff assumes that the sequester cuts will continue to be partially 

replaced, in proportions similar to those already implemented in fiscal years 2014 and 2015, with back-loaded 

measures generating savings in mandatory programs and additional revenues. Projections also incorporate 

the Protecting American From Tax Hikes Act of 2015, which extended some existing tax cuts for the short term 

and some permanently. Finally, Fiscal projections are adjusted to reflect the IMF staff’s forecasts for key 

macroeconomic and financial variables and different accounting treatment of financial sector support and of 

defined-benefit pension plans and are converted to a general government basis.

Table 3. Federal and General Government Finances

(percent of GDP)

(calendar years; GFSM2001 basis)

(fiscal years; budget basis)

(from authorities)

Projections
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48 INTERNATIONAL MONETARY FUND

Annex I. Response to Past Policy Advice

Fiscal policy. Public finances remain on an unsustainable path. Over the last few years staff has 

emphasized the importance of fixing long standing fiscal problems and normalize the budget 

process. The Bipartisan Budget Acts of 2013 and 2015 were welcome steps. The Bipartisan Budget 

Act of 2015 suspended the debt ceiling until March 2017 and approved appropriations for 2016 and 

2017, lessening fiscal uncertainties. These agreements, however, did not address the sustainability of 

public finances over the medium term. Staff has advocated adopting a medium-term fiscal 

consolidation plan to restore long-run fiscal sustainability, stressing that early action is needed to 

slow entitlement spending. Anchored by such a plan, staff called for expanding the near-term budget 

envelope through specific measures—including front-loaded infrastructure spending, a better tax 

system, active labor market policies, and improving educational spending, with these measures 

funded by offsetting savings in future years. As part of the Bipartisan Budget Act and Protecting 

Americans from Tax Hikes Act, the authorities did expand the near-term deficit and made permanent 

various tax measures (including improvements to the EITC, the research and experimentation tax 

credit, and child tax credit advocated by staff).

Monetary policy. Staff supported the FOMC remaining data dependent and recommended 

deferring the first increase in policy rates until there were greater signs of wage or price inflation 

than were evident at the time of the 2015 Article IV Consultation. Based on staff’s macroeconomic 

forecast, this implied a gradual path of policy rate increases starting in the first half of 2016. Staff has

also repeatedly stressed the importance of communication and pointed to scope for enhancing the 

Fed’s communications toolkit. The Fed did raise rates in December 2015, with little impact on 

domestic or international financial markets, and continues to judge further increases in the federal 

funds rate based on incoming data. Communications have repeatedly emphasized that the 

normalization path will be data dependent and gradual. The Fed continues to maintain a supportive 

monetary policy and has made significant efforts—in FOMC statements, press conferences, and 

speeches—to prepare markets for the path toward more normal levels of the policy rate. 

Monetary policy and financial stability. Staff has recommended that policy rates should not be 

used in an effort to either reduce leverage or dampen financial stability risks. Instead, efforts should 

be targeted toward strengthening the macroprudential framework, developing regulatory tools, and 

addressing gaps in regulation and supervision. The authorities largely agreed saying that “the jury is 

still out” on whether such using interest rates for financial stability purposes would be advisable in 

the U.S. context. They also said there were other tools available to manage emerging risks (such as 

countercyclical capital buffers or margin requirements). Judging from Fed minutes, financial stability 

considerations appear not to have been a relevant consideration in recent Fed policy rate decisions.

Financial policies. Based on the 2010 and 2015 FSAPs, staff has recommended multiple steps to 

tackle financial sector risks, particularly those related to activities in nonbank intermediaries. 

Substantial progress has been made on the national and global financial reform agenda over the last 

few years, and many of the policy suggestions have been implemented. These include enhanced 

capital and liquidity buffers, strengthened underwriting standards in the housing sector, greater 
UNITED STATES

INTERNATIONAL MONETARY FUND 49

transparency to mitigate counterparty risks, as well as progress in collecting more comprehensive 

information to assess risks. Still, several reforms emphasized by staff remain to be completed, such as 

addressing remaining vulnerabilities of the money market funds and the tri-party repo market, 

reducing data blind-spots, better risk management and stress testing of asset managers, enhancing 

the effectiveness of the FSOC, simplifying the institutional structure for financial oversight, and 

increasing the resilience of the insurance sector. Annex II provides a fuller summary of progress on 

FSAP recommendations.

Structural policies. Staff has recommended structural measures to counter the slowdown in 

potential growth and high poverty rates, including further expanding the EITC, increasing the 

minimum wage, investing in infrastructure and education, improving the tax system, using active 

labor market policies, implementing a broad, skills-based approach to immigration reform and 

capitalizing on the gains from rising U.S. energy independence. The Administration has taken 

measures to increase wages for employees of federal contractors and some states and localities have 

increased minimum wages and mandated paid family leave. Building political consensus on a reform 

of the tax system in the direction envisaged by staff (a less complex system with a broader tax base 

and lower rates) has made little progress. Support for immigration reform is elusive and there is no 

plan to raise the gas tax or to introduce a VAT or a carbon tax. However, the recent tax bill whose 

provisions made permanent the enhanced child tax credit, the American Opportunity tax credit for 

college tuition, the improved earned income tax credit (expanded to larger families and removing 

the marriage penalty), and the research and experimentation credit for corporations.

Housing finance. Staff has stressed policy measures to encourage greater availability of mortgage 

credit, while clarifying the future role of government in housing finance. Administrative measures 

have been taken to lessen regulatory uncertainties and to transfer risks from the agencies to private 

investors through market transactions but more could be done in this direction without legislation 

(see 2015 Selected Issues Paper). Legislative proposals to more fundamentally reshape housing 

finance have made little headway in Congress.
FSAP 

Recommendation

Developments Status

Macroprudential 

framework and policy

Provide an explicit 

financial stability 

mandate to all FSOC 

member agencies 

Several agencies continue to have no explicit legal mandate to support financial stability. This 

complicates their input to the FSOC, and potentially undermines the response to FSOC 

recommendations and macroprudential coordination. While not all FSOC agencies within their 

existing authorities have an explicit legal mandate to support financial stability, they all continue to 

make progress toward financial reforms. Some FSOC agencies, however (including the FDIC, as 

specifically incorporated in its official strategic plan), have as their mission, in relevant part, 

maintaining financial stability.

Not 

implemented.

Include in FSOC Annual 

Report specific followup actions for each 

material threat identified 

While the FSOC’s 2015 Annual Report discusses, in a detailed manner, each material threat 

identified, provides updates on regulations and other measures proposed or implemented in 

response to each threat, and outlines the research agenda, specific timelines and responsible 

agencies are not identified. 

Partially 

implemented.

Publish the current U.S. 

macroprudential toolkit 

and prioritize further 

development 

The FSAP recommended that the FSOC should identify when macroprudential tools are needed, and 

promote the implementation of effective system-wide and time-varying macroprudential tools. The 

macroprudential toolkit remains to be centrally published, and a prioritization to be made.

The FSAP recommended a further development and implementation of time-varying

macroprudential tools, like the countercyclical capital buffer (CCB): Necessary final steps on 

application triggers required to implement the CCB should be completed; the scope to alter riskPartially 

implemented.

50 INTERNATIONAL MONETARY FUND

UNITED STATES

Annex II. Follow-Up on 2015 FSAP Recommendations
weights on particular types of lending needs to be assessed; macroprudential tools could be used in 

the real estate sector (e.g. by varying maximum LTVs and DTI ratios). 

In end-January 2016, the Federal Reserve (FRB) extended until March 21, 2016 the comment period 

for the proposed policy statement detailing the framework the FRB would follow in setting the CCB 

(comments on the proposed policy statement were originally due by February 19, 2016). The 

proposed policy statement gives details on the range of financial system vulnerabilities and other 

factors that could be taken into account as it calibrates the CCB. Further, the FRB also affirmed that 

the current level of the CCB should be 0 percent. The FRB consulted with staff of the Federal Deposit 

Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC) in making this 

determination.

Expedite heightened 

prudential standards for 

designated non-bank 

systemically important 

financial institutions 

(SIFIs)

The FRB has finalized a comprehensive set of heightened prudential standards for General Electric 

Capital Corporation, Inc. (GECC), which was designated by the FSOC in July 2013 for Federal Reserve 

supervision. The standards include capital and liquidity requirements, capital planning and stress 

testing requirements, financial risk management requirements, and restrictions on intercompany 

transactions between GECC and its parent. The FRB has further issued proposed reporting 

requirements and final resolution planning requirements for the insurance companies designated as 

SIFIs. 

On June 3, 2016, the Board approved an advance notice of proposed rulemaking inviting comment 

on conceptual frameworks for capital standards that could apply to systemically important insurance 

companies and to insurance companies that own a bank or thrift. 

Partially 

implemented.

Improve data collection, 

and address 

impediments to interagency data sharing

The Office of Financial Research (OFR) Interagency Data Inventory (IDI), which catalogues the data 

that FSOC member agencies purchase or collect from the industry or derive from other data, had its 

annual update in February 2016. FSOC member agencies use the inventory for identifying data gaps 

and for improving research and analysis but, due to specific restrictions to data sharing, the listing of 

Partially 

implemented. 

INTERNATIONAL MONETARY FUND 51

UNITED STATES
data in the inventory does not necessarily signify that all FSOC member agencies have access to all

data sets. 

The OFR’s Bilateral Repo Data Collection Pilot Project was the first instance where the OFR went 

directly to the industry to collect information. Participation in the pilot project was voluntary and, 

specifically, the participating companies provided input to the OFR on what data should be 

gathered. While information and data on the triparty and General Collateral Finance (GCF) repo 

markets are published regularly, information about bilateral repos (about half of the repo market in 

terms of volume) was hardly available, and largely incomplete. The data collection is being made 

permanent. 

While steady progress in data collection and sharing is being made, there are two areas where more 

work needs to be done: (i) The collection of data on securities lending, asset management, and 

bilateral repos is still at an early stage; (ii) outstanding obstacles to interagency data sharing should 

be reduced, as recommended in the FSAP. 

Regulation and 

supervision

Give primacy to safety 

and soundness in the 

supervisory objectives of 

Federal Banking 

Agencies 

The multi-agency framework continues to create coordination challenges. Duplication of supervision 

can potentially result in uncertainty for institutions when rules or guidance appear contradictory. 

However, the Federal Financial Institutions Examination Council (FFIEC) is a forum the agencies use 

to promote consistent approaches to bank supervision, which they also try to achieve through 

regular informal communication. Consumer protection is not left exclusively to the Consumer 

Financial Protection Bureau (CFPB). However, the prudential regulators and the CFPB have a 

memorandum of understanding (MOU) in place that establishes a process to coordinate exam 

scheduling. The MOU also requires that exam reports be shared and comments considered for 

those institutions where jurisdiction is shared, prior to the report of examination being issued to the 

institution. The federal banking agencies’ mandates have not been redefined, and although safety 

Partially 

implemented.

52 INTERNATIONAL MONETARY FUND

UNITED STATES
and soundness have not been given primacy in their supervisory objectives, federal banking 

agencies examine for safety and soundness under the Uniform Financial Institutions Rating System. 

While charter shopping has not been eliminated and the dual banking structure can be challenging 

for international cooperation, the FFIEC has affirmed that charter conversions or changes in primary 

federal regulator should only be conducted for legitimate business and strategic reasons. Further, 

enforcement actions still need to be coordinated better with home supervisors.

Strengthen the banking 

supervisory framework 

and limit structures for 

related party lending 

and concentration risk; 

and

update guidance for 

operational and interest 

rate risk 

Concentration risk: The FRB issued a final rule in November 2014, Regulation XX, to implement 

Section 622 of the DFA and establish a financial sector concentration limit. It prohibits a financial 

company from merging or consolidating with, or acquiring control of, another company if the 

resulting company’s liabilities would exceed 10 percent of the aggregate consolidated liabilities of all 

financial companies. Furthermore, in the FSAP’s Basel Core Principles (BCP) assessment, the 

supervisory framework for credit concentration risk was deemed sound. While guidance on specific 

areas of credit concentration risk has been issued, some reassessment of the supervisory force of the 

thresholds for commercial real estate exposures would be warranted. 

In March 2016, the FRB proposed a rule to address counterparty credit risk. The proposal would 

apply single-counterparty credit limits to Bank Holding Companies (BHCs) with total consolidated 

assets of $50 billion or more, and depending on the BHC’s systemic footprint: (i) GSIBs would be 

restricted to a credit exposure of no more than 15 percent of the bank's Tier 1 capital to another 

systemically important financial firm, and up to 25 percent of the bank's tier 1 capital to another 

counterparty; (ii) BHCs with $250 billion or more in total consolidated assets, or $10 billion or more 

in on-balance-sheet foreign exposure, would be restricted to a credit exposure of no more than 25 

percent of the bank's tier 1 capital to a counterpart;. (iii) BHCs with $50 billion or more in total 

consolidated assets would be restricted to a credit exposure of no more than 25 percent of the 

bank's total regulatory capital to another counterparty; (iv) BHCs with less than $50 billion in total 

consolidated assets, including community banks, would not be subject to the proposal. Similarly 

tailored requirements would also be established for foreign banks operating in the United States.

However, comparable supervisory guidance on other risk concentrations remains to be issued. The 

separate and additional limits for money market investments and security holdings available to 

Partially 

implemented.

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INTERNATIONAL MONETARY FUND 53
banks (but not federal savings associations) continue to leave open the possibility of excessive risk 

concentrations.

Guidance on operational risk and interest rate risk: Supervisory guidance and reporting requirements 

in operational risk remain disparate. The approach to interest rate risk in the banking book does not 

include specific capital charges or limits being set under Pillar 2, is in contrast to the treatment of 

other risks. Further guidance remains to be issued. 

Limit structures for related party lending: Publicly available information suggests no progress has 

been made towards implementation of the FSAP recommendation. 

Set up an independent 

insurance 

regulatory body with 

nationwide 

responsibilities and 

authority 

The supervisory and regulatory architecture for insurance firms has not changed. Not 

implemented.

Implement principlebased valuation 

standard for life insurers 

consistently across the 

states 

State insurance regulators’ Principle-based Reserving Valuation Manual will become operative as of 

January 1, 2017 for the 45 States and territories that have already adopted it (but as of yet some 

States have not agreed on adopting the standard). Also, this does not automatically mean that 

standards will be fully harmonized across the States as risk models would still be approved at State 

level, and legislation leaves some room for interpretation. 

Partially 

implemented. 

54 INTERNATIONAL MONETARY FUND

UNITED STATES
Develop and implement 

group supervision and 

group-level capital 

requirements for 

insurance companies 

On June 3, 2016, the FRB approved an advance notice of proposed rulemaking inviting comment on 

conceptual frameworks for capital standards that could apply to systemically important insurance 

companies and to insurance companies that own a bank or thrift.

State insurance regulators have adopted a proposal for a group capital calculation (not currently 

framed as a requirement) and instituted a Group Capital Calculation Working Group.

Regarding group supervision, as of May 2016, all 50 states, the District of Columbia and Puerto Rico, 

have adopted the updated NAIC model holding company act enhancing state insurance regulators’

group supervisory authorities.

Partially 

implemented.

Provide needed 

resources to the 

Securities and Exchange 

Commission (SEC) and 

Commodity Futures 

Trading Commission 

(CFTC) and enhance 

their funding stability 

Publicly available information suggests no progress has been made towards implementation of the 

FSAP recommendation.

Not 

implemented.

Increase examination 

coverage of asset 

managers 

The FSAP recommended that the SEC needs to be better equipped in order to be able to 

significantly increase the number of asset manager examinations from the current coverage of only 

around 10 percent of investment advisers per year. 

Not 

implemented.

Introduce explicit 

requirements on risk 

management and 

internal controls for 

asset managers and 

commodity pool

operators 

The FSOC has actively reviewed potential risks to financial stability stemming from the asset 

management industry, and in April 2016 published a review of asset management products and 

activities that includes a recommendation to establish explicit risk management requirements for 

asset managers (see further below). 

Not 

implemented.

Complete the 

assessment of equity 

The SEC’s Equity Market Structure Advisory Committee continues to meet on a quarterly basis. Over 

the last year, the meetings focused on (i) recommendations related to a potential access fee pilot 

Not 

implemented. 

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INTERNATIONAL MONETARY FUND 55
market structure and 

address regulatory gaps

and trading venues regulation, (ii) the events of August 24, 2015 (“flash crash”), (iii) impact of access 

fees and rebates on equity market structure; (iv) different regulatory frameworks applicable to 

exchanges and other trading venues; (v) the order protection rule (Rule 611 of SEC Regulation NMS). 

The assessment of the equity market structure has not been completed. Hence, regulatory gaps

remain to be addressed and data gaps be closed. 

Stress testing

Conduct liquidity stress 

testing for banks and 

nonbanks on a regular 

basis; run regular 

network analyses; and 

link liquidity, solvency, 

and network analyses 

Comprehensive Capital Analysis and Review (CCAR) and DFA stress tests continue to take the form 

of supervisory solvency stress tests, where systemic risk is not specifically assessed. Authorities 

finalized a rule implementing for the large U.S. banks the Liquidity Coverage Ratio (LCR), and more 

recently proposed a Net Stable Funding Ratio (NSFR). Per definition, the LCR is a short-term liquidity 

stress test, and banks are expected to pass the underlying stress scenario on a continuous basis. 

Both required and stable funding in the NSFR are subject to stress (runoff rates and haircuts on the 

value of liquid assets). Hence, the NSFR contains elements of liquidity stress test, as well. However, 

stress testing exercises, like the DFA stress tests or the CCAR, focus on credit and market risk, not on 

funding and market liquidity risk. Authorities do not yet conduct, on regular basis, liquidity stress 

tests on nonbanks. 

Liquidity stress tests for banks: The final rule on the Liquidity Coverage Ratio (LCR), which requires 

large banking organizations to hold a minimum amount of high-quality liquid assets that can be 

utilized to meet net cash outflows over a 30-day stress period, was finalized in September 2014. 

Firms are required to be fully compliant with the standard by January 1, 2017. 

The authorities in May 2016 proposed a rule to strengthen the medium-term funding patterns of 

U.S. banks by requiring a minimum amount of available stable funding (Net Stable Funding Ratio, 

NSFR) relative the required stable funding. The NSFR would become effective on January 1, 2018. 

The NSFR proposal would complement the LCR rule. The proposed rule foresees specifications 

conditional on the risk of a particular bank, i.e., the most stringent requirements would apply to the 

largest firms (those with $250 billion or more in total consolidated assets or $10 billion or more in 

on-balance sheet foreign exposure, as well as those banking organizations' subsidiary depository 

institutions that have assets of $10 billion or more). The proposed rule for the largest BHCs would be

consistent with the liquidity standard agreed to by the Basel Committee on Banking Supervision. 

BHCs with less than $250 billion, but more than $50 billion in total consolidated assets, and less than 

Partially 

implemented.

56 INTERNATIONAL MONETARY FUND

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$10 billion in on-balance sheet foreign exposure would be subject to a less stringent, modified NSFR 

requirement. The rule would not apply to holding companies with less than $50 billion in total 

consolidated assets and would not apply to community banks. Holding companies subject to the 

proposal would be required to publicly disclose information about their NSFR levels each quarter. 

Network analysis, and integration with liquidity and solvency stress tests. The DFA stress tests or the 

CCAR do not integrate different risk classes beyond credit and market risk. Tests look at banks 

individually, while contagion and spillover risks are not assessed in the tests. Publicly available 

information suggests there is no supervisory requirement to integrate in a single framework 

different risk factors. 

Develop and perform 

regular insurance stress 

tests on a consolidated 

group-level basis

State insurance regulators assess the stress tests performed by insurance companies on a 

consolidated group-level basis through the Own Risk and Solvency Assessment (ORSA). However, as 

of yet, no macroprudential insurance sector stress testing is performed by regulators. 

Partially 

implemented. 

Develop and perform 

regular liquidity stress 

tests for the asset 

management industry 

The FSOC has actively reviewed potential risks to financial stability stemming from the asset 

management industry, and in April 2016 published a review of asset management products and 

activities. The update summarized the outcome of an almost two-year long consultation process 

with the public, and provided the FSOC’s view on areas that require specific attention, and outlines 

how to respond to these risks. The report largely discussed and commented on the SEC’s May 2015 

proposals on how to regulate the US asset management industry. These included enhanced data 

reporting for registered investment companies and advisers of separately managed accounts; a 

strengthening of asset management firms’ liquidity risk management and disclosure; and limits to 

leverage obtained through derivatives transactions by registered investment companies. The FSOC’s 

review focused on five areas: liquidity and redemption; leverage; operational functions; securities 

lending; and firm resolvability. As regards liquidity and redemption risks, the FSOC recommends 

implementing requirements for robust liquidity risk management practices for mutual funds, 

including stress testing; the issuance of guidelines on funds’ holdings of less liquid assets; enhanced 

reporting as well as public disclosure; and the reallocation of redemption costs. 

Partially 

implemented.

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INTERNATIONAL MONETARY FUND 57
Market-based finance 

and systemic liquidity

Change redemption 

structures for mutual 

funds (MF) to lessen 

incentives to run; move 

all money market 

mutual funds (MMMFs) 

to variable net asset 

value (NAV) approaches

FSOC recommended changes in redemption structures: In April 2016, the FSOC recommended taking 

steps to allow and facilitate MFs’ allocation of redemption costs more directly to investors who 

redeem shares. Such tools would help reduce first-mover advantage and mitigate the risk that lessliquid asset classes would be subject to fire sales under stressed conditions. It was further 

recommended that regulators assess which tools could be effective in reducing first-mover 

advantage and determine the scope of application of such tools. The report welcomed the SEC’s 

September 2015 proposed rule for MFs and ETFs designed to enhance liquidity risk management by 

funds, provide new disclosures regarding fund liquidity, and allow funds to adopt swing pricing to 

pass on transaction costs to entering and exiting investors. Regulators should issue guidance on 

adequate risk management planning, and establish expectations regarding MFs’ abilities to meet 

redemptions under a variety of extreme but plausible stressed market scenarios (stress testing).

MMMFs and variable NAV: IMF staff and the FSOC have long recommended the adoption of floating 

NAVs for MMMFs, which mandate the daily share prices of these funds to fluctuate according to 

changes in the market-based value of fund assets. The new rules issued by SEC require floating 

NAVs for institutional prime MMMFs but allow retail and government MMMFs to continue using an 

amortized cost method of pricing where constant NAVs are applied. For the latter group of MMMFs, 

the rules provide new tools—liquidity fees and redemption gates—to address potential runs, but 

structural vulnerabilities remain. For government MMMFs, the framework remains unchanged. The 

rules provide a two-year transition period for their implementation, and are not likely to be revised 

again anytime soon. 

Partially 

implemented.

Complete triparty repo 

(TPR) reforms and 

measures to reduce runrisk, including the 

possible use of a central 

clearing platforms 

(CCPs)

Fully implemented. The underlying infrastructure of the TPR market, a key stress point in the global 

financial crisis, has been improved. The amount of intra-day credit extended to the collateral 

providers has been largely eliminated by modifying the settlement cycle and improving the collateral 

allocation processes. Also, clearing banks are now limited to funding a maximum of 10 percent of a 

dealer’s notional tri-party book through pre-committed lines (incurring a capital charge). The 

resilience of the TPR market needs to be enhanced to reduce fire-sale risk and the reliance on the 

two clearing banks. Furthermore,, full alignment of general collateral finance (GCF; service offered by 

one U.S. CCP, which allows securities dealers exchanging anonymously sovereign securities for cash) 

Implemented.

58

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INTERNATIONAL MONETARY FUND
repo settlement with the new triparty settlement process has been achieved by moving the 

unwinding of inter-dealer GCF repos to 3:30 pm, largely reducing the need for discretionary 

extensions of intraday credit to settle.

It remains important to closely monitor the CCP that settles interbank GCF repo transactions, in 

particular as the Fixed Income Clearing Corporation suspends GFC repo transactions on an interbank 

basis starting July 2016, and to take further measures to reduce the usage of intraday credit if the 

interbank GCF repo program is restored.

Risk of fire-sales of collateral by a dealer loosing access to repo or by a dealer’s creditors: The latter 

has been reduced through the use of CCP-like clearing for repo financing, an industry effort 

establishing a process for orderly asset liquidation of a defaulted member. And although the risk of 

collateral fire-sales has reduced through the introduction of capital and liquidity regulations for 

broker-dealers, it remains a significant risk that warrants attention. 

Intraday counterparty risk exposure in the tri-party repurchase (repo) market contracted significantly

in recent years, but more work is needed to bring the settlement of General Collateral Finance (GCF)

repo transactions in line with post-crisis reforms. The potential for fire sales of collateral by creditors 

of a defaulted broker-dealer also remains a significant risk. Additionally, data gaps continue to limit 

regulators’ ability to monitor the aggregate repo market and identify interdependencies among 

firms and market participants. Regulators will need to monitor market responses to new SEC money 

market mutual fund (MMF) rules, which become effective this year, and assess where there may be 

unforeseen risks, as well as potential regulatory and data gaps associated with other types of cash 

management vehicles.

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INTERNATIONAL MONETARY FUND 59
Enhance disclosures and 

regulatory reporting of 

securities lending 

In early 2016, the Office of Financial Research (OFR), FRB, and SEC completed a joint securities 

lending data collection pilot. In April 2016, the FSOC highlighted that without comprehensive 

information on securities lending activities across the financial system, regulators cannot fully assess

financial stability risk, and encouraged enhanced and regular data collection and reporting, as well 

as interagency data sharing. The FSOC encouraged efforts to propose and adopt a rule for a 

permanent collection of data on securities lending.

Partially 

implemented. 

Strengthen brokerdealer regulation, in 

particular liquidity and 

leverage regulations 

The U.S. authorities are tackling financial leverage through regulating financial products rather than 

types of market participants (of which some are not subject to direct regulation): Broker-dealer 

requirements, like margin rules for securities transactions, central clearing of derivatives (fostering 

product standardization and increasing liquidity), as well as newly introduced margin requirements 

for uncleared swaps constitute important examples of regulatory and supervisory efforts. However, 

those apply only to broker-dealers under a bank holding company, and leverage can still be 

increased through other instruments (like commercial paper).

In order to reduce the financial stability risk potential of derivatives, US bank swap dealers are now 

required to collect and post margin on (almost) all swaps that cannot be centrally cleared. The use 

of uncleared derivatives is thereby made less attractive, and will motivate substitution with standard 

derivatives that go through central clearinghouses. This measure also helps ensure that a default of a 

major OTC derivatives market participant would not bring down the system. As CCPs take on such a 

central role in today’s financial markets, it is critical that be both resilient and resolvable. 

In December 2015, the SEC proposed rules on the use of derivatives by registered investment 

companies, limiting leverage generated through derivatives, and requiring formalized risk 

management programs for funds with particularly complex derivatives structures.

In October 2015, FRB, Federal Deposit Insurance Corporation (FDIC), OCC, Farm Credit 

Administration (FCA), and Federal Housing Finance Association (FHFA) together issued a final rule on 

capital and margin requirements for common swap entities (swap dealers, key swap participants, 

security-based swap dealers and participants). In parallel, the agencies issued another final rule that 

specified which non-cleared swaps and security-based swaps are exempted from the general rule. 

Partially 

implemented. 

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60 INTERNATIONAL MONETARY FUND
The key change here is the use of a variation margin requirement, which will be phased in over six 

months starting September 2016.

The European Commission (EC) and the CFTC reached agreement on the Common Approach for 

Transatlantic CCPs OTC Derivatives Reform agenda, which will allow the European Securities and 

Markets Authority (ESMA) to recognize U.S. CCPs as ‘equivalent’ to EU CCPs for the purpose of 

providing their services in the European Union (EU) while complying with CFTC requirements. 

Reciprocally, EU CCPs will also be permitted to provide services to U.S. clearing members and clients 

while complying with certain corresponding EU requirements. As a result, derivatives clearing 

become harmonized across the Atlantic. However, international regulatory and supervisory bodies 

should continue to develop rules and standards as market infra- and microstructure evolves. Broader 

international harmonization of standards, beyond the U.S.-EU, would help reduce the potential for 

regulatory arbitrage, and further enhance the stability of critical market infrastructure. 

Improve data availability 

across bilateral 

repo/triparty repo and 

securities lending 

markets 

The OFR’s Bilateral Repo Data Collection Pilot Project aims at collecting data about bilateral repos 

(see above). Data on the triparty and GCF repo markets are published regularly. Despite these 

efforts, considerably more work needs to be done with respect to data collection on securities 

lending and asset management, where data is scarce. Also, information collection on bilateral repos 

is still at an early stage. 

Partially 

implemented.

Liquidity backstops, 

crisis preparedness, 

and resolution

Revamp the Primary 

Credit Facility as a 

monetary instrument 

The facility that expired in 2010 has not been revamped. Publicly available information suggests no 

progress has been made towards implementation of the FSAP recommendation.

Not 

implemented. 

Enable the Fed to lend 

to solvent non-banks 

that are designated as 

systemically important 

In November 2015, the Federal Reserve approved a final rule specifying its procedures for emergency 

lending under Section 13(3) of the Federal Reserve Act. Since the passage of the DFA in 2010, the 

FRB’s emergency lending activity has been limited to programs and facilities with "broad-based 

eligibility" that have been established with the approval of the Secretary of the Treasury. The rule 

Partially 

implemented.

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INTERNATIONAL MONETARY FUND 61
provides greater clarity regarding the FRB’s implementation of limitations to emergency lending, and 

other statutory requirements. The final rule defines "broad-based" to mean “a program or facility 

that is not designed for the purpose of aiding any number of failing firms and in which at least five 

entities would be eligible to participate.” These additional limitations are consistent with and 

provide further support to the revisions made by the DFA that a program should not be for the 

purpose of aiding specific companies to avoid bankruptcy or resolution. While the final rule has 

achieved more clarity, its restrictions limit the Federal Reserve in taking action to avoid or minimize 

contagion, in particular from solvent non-banks that have been designated as systemic by the FSOC.

Assign formal crisis 

preparedness and 

management 

coordinating role to 

FSOC 

Crisis preparedness and management has not been formally assigned to the FSOC. Publicly available 

information suggests no progress has been made towards implementation of the FSAP 

recommendation.

Not 

implemented.

Extend the Orderly 

Liquidation Authority 

powers to cover 

systemically-important 

insurance companies 

and U.S.

branches of foreignowned banks 

Systemically important U.S. insurance holding companies can be resolved using Orderly Liquidation 

Authority (OLA) powers. The State-based resolution regimes related to the resolution of insurance 

company subsidiaries have tools available to address insurance company liquidations, but their 

capacity to deal effectively with insurance company subsidiaries of a systemically important holding 

company remains untested. U.S. agencies are currently discussing how FMIs would be resolved. To 

the extent a foreign bank has branches in the United States, a Single Point of Entry resolution 

strategy generally would not affect such branches.

Partially 

implemented.

Adopt powers to 

support foreign 

resolution measures; 

extend preference to 

overseas depositors 

To the extent insured depository institutions enter resolution under the FDI Act, the depositor 

preference rules applicable to insured depository institutions, as well as ring-fencing of foreignowned uninsured bank branches can complicate effective coordination by potentially increasing the 

likelihood of ring-fencing of foreign branches by host authorities. However, efforts continue to 

enhance resolution preparedness, including by coordinating institution-specific resolution strategies 

on a cross-border basis (cf. living wills, see below). Also, information-sharing agreements before and

during a crisis, as well as the progress on effective group-wide resolution plans and enhancing 

resolvability, are not fully implemented.

Partially 

implemented.

62

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Finalize recovery and 

resolution plans for 

SIFIs, agree cooperation 

agreements with 

overseas authorities 

Important steps have been made towards implementing effective recovery and resolution 

frameworks. The U.S. supervisory authorities place responsibility for the recovery planning process 

on the firm’s senior management. The board of directors of the firm is responsible for oversight of 

the firm’s recovery planning process. Recovery plans are updated at least annually.

To prepare for the implementation of its resolution authority under Title II of the Dodd-Frank Act, 

the FDIC has developed resolution plans for G-SIFIs and has included in each plan a resolution 

strategy and an operational plan that meet the requirements of the applicable Key Attributes and 

relevant annexes thereto.

Furthermore, the establishment of living wills is an essential requirement from the DFA, where SIFIs 

and certain other firms are asked to design, and submit for review to the FRB and the FDIC, concise 

plans explaining their orderly resolution under bankruptcy. Authorities have recently communicated 

that the majority of the firms’ submitted plans so far are not credible or would not facilitate an 

orderly resolution under the U.S. Bankruptcy Code, and that more work needs to be done by these 

firms. However, according to the U.S. authorities, the living wills have shown progress and will 

continue to evolve. Progress made includes firms’ adherence to the ISDA 2015 Universal Resolution 

Stay Protocol; maintenance of long-term debt issued from the top-tier parent holding company to 

potentially absorb losses; steps to ensure operational continuity on both an intra-company and 

third-party basis; continued legal entity rationalization; and enhanced capability to monitor liquidity 

needs.

Partially 

implemented. 

Financial market 

infrastructures (FMIs)

Identify and manage 

system-wide risks 

related to 

interdependencies 

among FMIs, banks, and 

markets

Progress has been made towards implementation of the FSAP recommendation. The U.S. authorities 

have participated in Financial Stability Board (FSB) work streams on the continuity of access to FMIs 

for members in resolution and resolution strategies for FMIs. U.S. authorities have discussed FMI 

Partially 

implemented.

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INTERNATIONAL MONETARY FUND 63
recovery actions and have commenced information sharing related to resolution matters, and are 

actively engaging in resolution planning for systemic CCPs. 

U.S. authorities will continue efforts to increase the robustness of CCPs. Several issues identified at 

the domestic and international levels warrant further attention, such as cyber resilience, standardized 

stress testing, harmonized margin requirements, implementation of recovery and resolution regimes, 

the adequacy of CCPs’ loss absorbing capacity in resolution, and continued coordination between 

the supervisors of CCPs and their main clearing members.

Offer Fed accounts to 

designated Financial 

Market Infrastructures 

(FMUs) to reduce 

dependencies on 

commercial bank 

services 

In April 2016, the Federal Reserve Bank of Chicago authorized three U.S. clearing houses, run by CME 

Group and Intercontinental Exchange, and the Options Clearing Corporation, to open accounts at the 

central bank. The measure has been possible as clearing houses have been designated as 

systemically important utilities. 

Implemented. 

Housing finance

Reinvigorate the 

momentum for 

comprehensive housing 

market reform

Housing finance and the U.S. housing market have not been reformed comprehensively. 

The government decided to make only limited changes to the footprint of Government Sponsored 

Entities (GSEs). This means that the availability of mortgages will continue to be wider than without 

Fanny and Freddy dominating the market. Lender surveys organized by Fannie or housingrisk.org 

further show that credit standards have been loosening continuously since end-2014, indicating that 

loan loss impairments for the GSE (despite a recent decline) may increase somewhat going forward. 

As a result, the GSEs’ capital buffer could erode going forward, and Treasury funds are needed. Also, 

since 2015, the GSEs have to transfer their funds to the Housing Trust Fund (in line with the 2008 

Housing and Economic Recovery Act), which puts additional pressure on the GSEs financial situation. 

The “Qualified Mortgage” (QM) rule (September 21, 2015) will stimulate the housing market further, 

as it provides smaller banks with protection against lawsuits under the Ability-to-repay regulation. 

This could in fact mean a competitive advantage for the smaller banks, as well as broader extension 

Not 

implemented.

64 INTERNATIONAL MONETARY FUND

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of housing credit in general. Perhaps this advantage can compensate for their low economies of 

scale in the high fixed-cost mortgage business. Large banks, on the other hand, continue to tighten 

standards and reduce mortgage exposure, resulting in an increase in nonbanks’ market share (see 

list of risks further below). 

Also, the Congressional Budget Office (CBO) continues to push for a modification of the GSEs’ 

multifamily and single-family operations (“shrink or eventually close”). The discussion centers around 

four different options, including a hybrid approach, where investors take the first hit, while the rest is 

covered under a federal guarantee (in line with the 2015 Article IV recommendations). However, 

there is little momentum for decisive housing market reform. 

The House Financial Services Committee in March 2016 passed three bills that aim at reducing small 

banks’ regulatory reporting requirements, which would allow regulators to tailor regulations to a 

bank or credit union’s business model and risk profile (H.R. 2896), modify the Volcker Rule so that 

smaller banks and businesses have easier access to finance (H.R.4096), and exempt from the Dodd-

Frank Act’s risk retention requirements certain qualified commercial real estate loans (H.R. 4620).

The two bills that featured prominently in the 2015 U.S. Article IV Special Issues Paper both did not 

pass Congress: House bill “Protecting American Taxpayers and Homeowners Act of 2013 - GSE Bailout 

Elimination and Taxpayer Protection Act 2013,” H.R.2733, introduced on July 22, 2013; and the “Housing Finance Reform and Taxpayer Protection Act of 2014,” S.1217. 

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Annex III. Risk Assessment Matrix1

Nature/Source of 

Risk

Overall Level of Concern

Likelihood of Realization Expected Impact if Risk Materializes

Sharp asset price 

decline and 

decompression 

of credit spreads

Medium

As investors reassess underlying risk and respond to 

changes in growth and financial prospects in large 

economies with poor market liquidity amplifying 

asset price volatility.

Medium

A persistent 1 percent decompression of credit 

spreads could subtract about 1⁄2 percent of GDP 

after two years. Sustained spikes in term premia 

could imply greater output losses.

Surge in the US

dollar 

High Medium

Improving U.S. economic prospects relative to the 

rest of the world could lead to a dollar surge, 

suppressing exports and investment in tradables and 

eroding growth.

A persistent 10% dollar appreciation reduces GDP

by 0.5 percentage points in the first year and 0.5-

0.8 percentage points in the second year, ceteris 

paribus.

Persistently 

lower oil prices

Medium Low

Low oil prices triggered by supply factors reverse only 

gradually, amidst weak demand. A smaller than 

expected boost to consumption and non-oil 

investment are outweighed by the negative impact 

on investment in the energy sector.

With the level of oil investment already cut in half 

in the past 2 years, further declines are likely to 

have small effects on aggregate growth, with 

potential upsides if consumption effects kick in.

Faster increases 

in interest rates

Medium Medium

The Fed may raise policy rates at a faster-thanexpected pace because inflation picks up. This could 

lead to market volatility and higher risk premia as 

portfolios are repositioned.

A permanent 50 bps surprise increase in 10-year 

interest rates could subtract about 1⁄2 percent of 

GDP after two years. Sustained spikes in term and 

risk premia could imply greater output losses.

Slower U.S. 

potential growth

Low High

Potential growth may be slower than the 2 percent 

currently assessed. If so, the current output gap 

would be significantly smaller and prospects for 

future growth would be weaker.

Greater inflationary pressures would lead to a 

steeper path for policy rates and create market 

volatility. Lower medium-term growth would 

worsen poverty, increase debt-GDP, and create 

negative global spillovers.

Structurally weak 

growth in key 

advanced and 

emerging 

economies

High Medium

Weak demand and persistently low inflation leading 

to “new mediocre” rate of growth. Maturing of the 

cycle, misallocation of investment, and incomplete 

structural reforms leads to prolonged slower growth 

in EMs.

A 1 percentage point decline in growth in 

advanced and emerging economies could 

subtract about 0.1 percentage point of U.S. GDP 

after two years.

British voters 

elect to leave the 

European Union.

High Medium/Low

Protracted post-exit negotiations of trade, financial 

and migration relationships, elevated financial 

volatility and heightened uncertainty.

The likely increase in risk premia could result in a 

stronger U.S. dollar and lower Treasury yields with 

an uncertain impact on the U.S. economy.

 

1 The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely 

to materialize in the view of IMF staff). The relative likelihood of risks listed is the staff’s subjective assessment of the 

risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability 

between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the 

source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive 

risks may interact and materialize jointly.
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Annex IV. Public Debt Sustainability Analysis

The budget deficit in the United States has been reduced significantly over the past few years. Yet, the 

public debt ratio remains on an unsustainable trajectory over the medium term. Under the baseline 

scenario, public debt is projected to first stabilize, but then to start rising as aging-related spending 

pressures on entitlement programs assert themselves and interest rates normalize. Gross financing 

needs are large but manageable given the global reserve currency status of the United States. A

medium-term, credible consolidation plan remains a key policy priority.

Background. Significant fiscal consolidation measures were legislated in 2011–13 to tackle the high 

public debt ratio, which has doubled at the federal government level since 2007 as a result of the 

financial crisis and the ensuing recession. The Bipartisan Budget Acts of 2013 and 2015 partially 

reversed the cuts scheduled to take place in FY2014-2017, replacing them with savings generated 

through cuts to mandatory spending in later years and, thus, improving the pace and distribution of 

near-term deficit reduction. On the other hand, the Tax Act of 2015, extended many tax cuts through 

the medium term and made some permanent, leading to higher deficits in the medium and long 

term.

Baseline. Staff’s baseline assumes the current laws, except that the automatic spending cuts beyond 

FY2017 would be partially reversed and replaced similar to the deals reached in the Bipartisan 

Budget Acts of 2013 and 2015). With these assumptions, the public debt ratio temporarily stabilizes 

in 2016–18. However, the debt ratio starts rising again owing to the rising interest rates, as well as 

health care and social security related spending pressures from an aging population. Federal debt 

held by the public is projected to increase from 75 percent of GDP now to close to 82 percent of 

GDP in FY2025, with general government gross debt exceeding 108 percent of GDP by FY2025. 

Overall, despite the substantial deficit reduction achieved so far and the legislated savings in the 

pipeline, the U.S. public finances remain on an unsustainable trajectory.

Adjustment scenario. The 2015 general 

government primary balance was -11⁄2 percent of 

GDP. In staff’s view, aiming for a medium-term 

general government primary surplus of about 

3⁄4 percent of GDP (a federal government surplus of 

about 1 percent of GDP) would be appropriate to 

put the public debt ratio firmly on a downward path. 

The target primary surplus would have to be higher 

in the long run to bring the debt ratio closer to the 

pre-crisis levels by 2030.

Debt servicing costs. The fiscal projections benefit 

from the current favorable interest rate-growth differential. Reflecting accommodative monetary 

policy and the safe haven status of the United States, real interest rates have fallen well below GDP 

growth. Under the staff’s baseline, the effective interest rate is projected to rise gradually from the 

current historical lows and reach about 43⁄4 percent by 2025 (compared to an average of about

68

72

76

80

84

68

72

76

80

84

2015 2017 2019 2021 2023 2025

Federal Debt Held by the Public

(percent of GDP, fiscal year)

Source: IMF staff estimates

Baseline

Adjustment
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31⁄2 percent over 2005–2015). As a result, real interest rates will become a major debt-creating flow 

over the medium-term. 

Realism. Baseline economic assumptions and fiscal projections are generally within the error band 

observed for all countries. While ambitious, the projected fiscal adjustment is realistic based on the 

consolidation episodes observed in 1990–2011.

Stress tests. The public debt dynamics are highly sensitive to growth and interest rate assumptions, 

primarily reflecting the fact that the U.S. public debt ratio already exceeds 100 percent of GDP. An 

increase of 200 basis points in the sovereign risk premium would mean a debt ratio that is about 

15 percentage points above the baseline. If real GDP growth turns out to be one standard deviation 

below the baseline, the public debt would increase by about 8 percentage points above the baseline. 

A scenario involving a 1 percentage point slippage in the planned consolidation over the next two 

years would lead to a debt-to-GDP ratio of 110 percent in 2025. A combined macro-fiscal shock 

could raise the public debt ratio as high as 132 percent of GDP by the end of the 10-year horizon. An 

exchange rate shock is unlikely to have important implications for debt sustainability in the United 

States given that all debt is denominated in local currency and the reserve currency status of the 

dollar.

Mitigating factors. The depth and liquidity of the U.S. Treasury market as well as its safe haven 

status at times of distress represent a mitigating factor for relatively high external financing 

requirements. 
UNITED STATES

INTERNATIONAL MONETARY FUND 69

As of June 15, 2016

2005–2013 2/ 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Sovereign Spreads

Nominal gross public debt 83.6 105.0 105.8 105.1 105.5 105.7 106.3 107.3 107.9 108.3 108.5 108.5 108.6 Spread (bp) 3/ 158

Public gross financing needs 17.3 14.9 16.9 24.0 20.2 18.8 19.0 20.2 20.5 21.1 21.3 21.7 21.9 CDS (bp) 94

Real GDP growth (percent) 1.4 2.4 2.4 2.2 2.5 2.3 2.0 1.9 2.0 2.0 2.0 2.0 2.0 Ratings Foreign Local

Inflation (GDP deflator, percent) 2.0 1.6 1.0 1.1 1.9 2.0 2.0 2.0 2.1 2.1 2.1 2.1 2.1 Moody's Aaa Aaa

Nominal GDP growth (percent) 3.5 4.1 3.5 3.3 4.4 4.4 4.1 4.0 4.1 4.1 4.1 4.1 4.1 S&Ps AA+ AA+

Effective interest rate (percent) 4/ 3.7 2.5 2.3 1.3 2.1 2.5 2.8 3.2 3.7 4.1 4.4 4.7 4.9 Fitch AAA AAA

2005–2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Cumulative

Change in gross public sector debt 4.4 0.2 0.9 -0.7 0.3 0.2 0.7 1.0 0.6 0.4 0.2 0.1 0.1 2.8

Identified debt-creating flows 4.8 0.5 0.3 -0.1 -0.6 -0.6 0.2 0.7 1.0 1.5 1.5 1.4 1.6 6.5

Primary deficit 4.7 2.1 1.5 1.9 1.7 1.4 1.5 1.5 1.5 1.5 1.2 0.8 0.8 13.8

Primary (noninterest) revenue and grants 29.6 31.0 31.2 31.2 31.1 31.0 30.9 31.0 31.0 31.0 31.0 31.0 31.0 310.2

Primary (noninterest) expenditure 34.3 33.1 32.7 33.1 32.8 32.4 32.5 32.5 32.5 32.5 32.1 31.8 31.8 324.0

Automatic debt dynamics 5/ 0.1 -1.6 -1.1 -2.1 -2.3 -2.0 -1.3 -0.8 -0.5 -0.1 0.3 0.6 0.8 -7.3

Interest rate/growth differential 6/ 0.1 -1.6 -1.1 -2.1 -2.3 -2.0 -1.3 -0.8 -0.5 -0.1 0.3 0.6 0.8 -7.3

Of which: real interest rate 1.2 0.8 1.3 0.2 0.2 0.4 0.7 1.1 1.6 2.0 2.3 2.6 2.8 13.9

Of which: real GDP growth -1.1 -2.4 -2.5 -2.2 -2.5 -2.4 -2.1 -1.9 -2.0 -2.0 -2.0 -2.0 -2.0 -21.2

Exchange rate depreciation 7/ 0.0 0.0 0.0 ... ... ... ... ... ... ... ... ... ... ...

Other identified debt-creating flows 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net privatization proceeds 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Contingent liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other liabilities (bank recap. and PSI sweetner) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Residual, including asset changes 8/ -0.4 -0.3 0.5 -0.5 0.9 0.8 0.4 0.3 -0.4 -1.1 -1.3 -1.3 -1.5 -3.7

Source: IMF staff

1/ Public sector is defined as general government

2/ Based on available data

3/ Bond Spread over German Bonds

4/ Defined as interest payments divided by debt stock at the end of previous year

6/ The real interest rate contribution is derived from the denominator in footnote 4 as r - π (1+g) and the real growth contribution as -g

7/ The exchange rate contribution is derived from the numerator in footnote 2/ as ae(1+r).

8/ For projections, this line includes exchange rate changes during the projection period. Also includes ESM capital contribution, arrears clearance, SMP and ANFA income, and the effect of deferred interest

9/ Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year

5/ Derived as [(r - p(1+g) - g + ae(1+r)]/(1+g+p+gp)) times previous period debt ratio, with r = interest rate; p = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange 

rate depreciation 

Debt, Economic and Market Indicators 1/

Debt-stabilizing 

primary balance 9/

0.8

United States: Public DSA–Baseline Scenario

(percent of GDP, unless otherwise indicated)

Actual

Contribution to Changes in Public Debt

Actual Projections

Projections

-6

-1

4

9

-5

0

5

10

15

20

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Primary deficit Real GDP growth

Real interest rate Exchange rate depreciation

Other debt-creating flows Residual

Projections

Debt-Creating Flows

(percent of GDP)

-40

-30

-20

-10

0

10

20

30

40

cumulative
UNITED STATES

70 INTERNATIONAL MONETARY FUND Baseline Historical Constant Primary Balance

Baseline scenario 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Historical scenario 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Real GDP growth 2.2 2.5 2.3 2.0 1.9 2.0 2.0 2.0 2.0 2.0 Real GDP growth 2.2 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4

Inflation 1.1 1.9 2.0 2.0 2.0 2.1 2.1 2.1 2.1 2.1 Inflation 1.1 1.9 2.0 2.0 2.0 2.1 2.1 2.1 2.1 2.1

Primary balance -1.9 -1.7 -1.4 -1.5 -1.5 -1.5 -1.5 -1.2 -0.8 -0.8 Primary balance -1.9 -4.5 -4.5 -4.5 -4.5 -4.5 -4.5 -4.5 -4.5 -4.5

Effective interest rate 1.3 2.1 2.5 2.8 3.2 3.7 4.1 4.4 4.7 4.9 Effective interest rate 1.3 2.1 2.7 3.2 3.7 4.3 4.7 5.1 5.4 5.6

Constant primary balance scenario

Real GDP growth 2.2 2.5 2.3 2.0 1.9 2.0 2.0 2.0 2.0 2.0

Inflation 1.1 1.9 2.0 2.0 2.0 2.1 2.1 2.1 2.1 2.1

Primary balance -1.9 -1.9 -1.9 -1.9 -1.9 -1.9 -1.9 -1.9 -1.9 -1.9

Effective interest rate 1.3 2.1 2.5 2.8 3.2 3.7 4.1 4.4 4.6 4.8

Source: IMF staff

United States: Public DSA–Composition of Public Debt and Alternative Scenarios

(Percent)

Composition of Public Debt

Alternative Scenarios

Underlying Assumptions

0

20

40

60

80

100

120

140

2007 2009 2011 2013 2015 2017 2019 2021 2023 2025

By Maturity 

(Percent of GDP)

Medium and long-term

Short-term

projection

0

25

50

75

100

125

150

175

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Gross Nominal Public Debt

(Percent of GDP)

0

20

40

60

80

100

120

140

2007 2009 2011 2013 2015 2017 2019 2021 2023 2025

By Currency

(Percent of GDP)

Local currency-denominated

Foreign currency-denominated projection

0

5

10

15

20

25

30

35

40

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Public Gross Financing Needs

(Percent of GDP)
Source : IMF staff

1/ Plotted distribution includes all countries, percentile rank refers to all countries. Projections made in the spring WEO vintage of the preceding year

2/ Data cover annual obervations from 1990 to 2011 for advanced and emerging economies with debt greater than 60 percent of GDP. Percent of sample on vertical axis

United States: Public DSA–Realism of Baseline Assumptions

Forecast Track Record, versus all countries

Assessing the Realism of Projected Fiscal Adjustment Boom-Bust Analysis

-10

- 8

- 6

- 4

- 20246

-10

- 8

- 6

- 4

- 20246

2007 2008 2009 2010 2011 2012 2013 2014 2015

Year 2 /

Real GDP Growth

Interquartile range (25-75) Median -0.52

Has a percentile rank of: 49%

United States median forecast error, 2007-2015:

Distribution of forecast errors: 1 /

(Percent, actual-projection)

-14

-12

-10

- 8

- 6

- 4

- 2024

-10

- 8

- 6

- 4

- 2024

2007 2008 2009 2010 2011 2012 2013 2014 2015

Year 2/

Primary Balance

Interquartile range (25-75) Median -0.28

Has a percentile rank of: 58%

United States median forecast error, 2007-2015:

Distribution of forecast errors: 1 /

(Percent of GDP, actual-projection)

- 8

- 6

- 4

- 202468

1 0

- 8

- 6

- 4

- 202468

1 0

2007 2008 2009 2010 2011 2012 2013 2014 2015

Year 2 /

Inflation (Deflator)

Interquartile range (25-75) Median

0.24

Has a percentile rank of: 53%

United States median forecast error, 2007-2015:

(Percent, actual-projection)

Distribution of forecast errors: 1 / pessimistic optimistic

-6

-4

-202468

t-5 t-4 t-3 t-2 t-1 t t+1 t+2 t+3 t+4 t+5

Real GDP growth

(Percent)

Not applicable 

for United States 02468

1 0

1 2

1 4 02468

1 0

1 2

1 4 Less- 4- 3- 2- 1012345678

Distribution 2/

United States 3-Year Adjustment in Cyclically-Adjusted 

Primary Balance (CAPB)

(Percent of GDP) More 3-year CAPB adjustment 

greater than 3 percent of 

GDP in approx. top quartile 02468

1 0

1 2 02468

1 0

1 2 Less- 4- 3- 2- 1012345678

Distribution 2/

United States 3-Year Average Level of Cyclically-Adjusted 

Primary Balance (CAPB)

(Percent of GDP) More 3-year average CAPB level 

greater than 3.5 percent of 

GDP in approx. top quartile

UNITED STATES

INTERNATIONAL MONETARY FUND 71
UNITED STATES

72 INTERNATIONAL MONETARY FUND

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Primary Balance Shock Real GDP Growth Shock

Real GDP growth 2.2 2.5 2.4 2.0 1.9 2.0 2.0 2.0 2.0 2.0 Real GDP growth 2.2 0.8 0.6 2.0 1.9 2.0 2.0 2.0 2.0 2.0

Inflation 1.1 1.9 2.0 2.0 2.0 2.1 2.1 2.1 2.1 2.1 Inflation 1.1 1.5 1.6 2.0 2.0 2.1 2.1 2.1 2.1 2.1

Primary balance -1.9 -3.5 -3.3 -1.5 -1.5 -1.5 -1.5 -1.2 -0.8 -0.8 Primary balance -1.9 -3.1 -2.3 -2.9 -1.5 -1.5 -1.5 -1.2 -0.8 -0.8

Effective interest rate 1.3 2.1 2.6 3.0 3.4 3.8 4.2 4.5 4.7 4.9 Effective interest rate 1.3 2.1 2.5 2.9 3.3 3.7 4.1 4.4 4.6 4.8

Real Interest Rate Shock Real Exchange Rate Shock

Real GDP growth 2.2 1.2 1.3 1.4 1.5 1.8 1.8 1.8 1.8 1.8 Real GDP growth 2.2 2.0 2.1 2.0 1.9 2.0 2.0 2.0 2.0 2.0

Inflation 1.1 1.9 2.0 2.0 2.0 2.1 2.1 2.1 2.1 2.1 Inflation 1.1 2.0 2.0 2.0 2.0 2.1 2.1 2.1 2.1 2.1

Primary balance -1.9 -1.7 -1.4 -1.5 -1.5 -1.5 -1.5 -1.2 -0.8 -0.8 Primary balance -1.9 -2.2 -1.9 -1.5 -1.5 -1.5 -1.5 -1.2 -0.8 -0.8

Effective interest rate 1.3 2.1 2.9 3.5 4.2 4.9 5.5 5.9 6.3 6.6 Effective interest rate 1.3 2.1 2.5 2.8 3.2 3.6 4.0 4.4 4.6 4.8

Combined Shock Contingent Liability Shock

Real GDP growth 2.2 0.8 0.6 1.4 1.5 1.8 1.8 1.8 1.8 1.8 Real GDP growth 2.2 0.8 0.6 2.0 1.9 2.0 2.0 2.0 2.0 2.0

Inflation 1.1 1.5 1.6 2.0 2.0 2.1 2.1 2.1 2.1 2.1 Inflation 1.1 1.5 1.6 2.0 2.0 2.1 2.1 2.1 2.1 2.1

Primary balance -1.9 -3.8 -3.3 -2.9 -1.5 -1.5 -1.5 -1.2 -0.8 -0.8 Primary balance -1.9 -8.0 -1.4 -1.5 -1.5 -1.5 -1.5 -1.2 -0.8 -0.8

Effective interest rate 1.3 2.1 2.9 3.6 4.3 4.9 5.5 6.0 6.3 6.6 Effective interest rate 1.3 2.2 2.6 3.0 3.3 3.7 4.1 4.4 4.7 4.9

Source: IMF staff

United States: Public DSA–Stress Tests

Underlying Assumptions

(Percent)

Additional Stress Tests

Macro-Fiscal Stress Tests

Combined Macro-Fiscal Shock

Baseline

Real GDP Growth Shock

Baseline

Primary Balance Shock Real Interest Rate Shock

Contingent Liability Shock

Real Exchange Rate Shock

90

95

100

105

110

115

120

125

130

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Gross Nominal Public Debt

(Percent of GDP)

250

270

290

310

330

350

370

390

410

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Gross Nominal Public Debt

(Percent of Revenue)

10

14

18

22

26

30

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Public Gross Financing Needs

(Percent of GDP)

90

95

100

105

110

115

120

125

130

135

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Gross Nominal Public Debt

(Percent of GDP)

250

270

290

310

330

350

370

390

410

430

450

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Gross Nominal Public Debt

(Percent of Revenue)

10

12

14

16

18

20

22

24

26

28

30

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Public Gross Financing Needs

(Percent of GDP)
UNITED STATES

INTERNATIONAL MONETARY FUND 73

United States

Source: IMF staff

Exchange Rate 

Shock

Contingent 

Liability Shock

Change in the 

Share of ShortTerm Debt

Foreign 

Currency 

Debt

Public Debt 

Held by NonResidents

 Heat Map Baseline (2015-2025)

United States: Public DSA–Risk Assessment

Real Interest 

Rate Shock

External 

Financing 

Requirements

Real GDP 

Growth Shock Gross financing needs 2/

Debt level 1/ Real GDP 

Growth Shock

Primary 

Balance Shock

Primary 

Balance Shock

Exchange Rate 

Shock

Contingent 

Liability shock

Real Interest 

Rate Shock

5/ Includes liabilities to the Eurosystem related to TARGET

4/ An average over the last 3 months, 17-Mar-16 through 15-Jun-16

2/ The cell is highlighted in green if gross financing needs benchmark of 20% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock 

but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant

400 and 600 basis points for bond spreads; 17 and 25 percent of GDP for external financing requirement; 1 and 1.5 percent for change in the share of short-term debt; 

30 and 45 percent for the public debt held by non-residents

Market 

Perception

3/ The cell is highlighted in green if country value is less than the lower risk-assessment benchmark, red if country value exceeds the upper risk-assessment benchmark, 

yellow if country value is between the lower and upper risk-assessment benchmarks. If data are unavailable or indicator is not relevant, cell is white. 

Lower and upper risk-assessment benchmarks are:

1/ The cell is highlighted in green if debt burden benchmark of 85% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not 

baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant

Upper early warning

Evolution of Predictive Densities of Gross Nominal Public Debt

(Percent of GDP)

Debt profile 3/

Lower early warning

(Indicators vis-à-vis risk assessment benchmarks)

 Debt Profile Vulnerabilities

1

1.5

1 2

0%

1 2

Not applicable 

400 for United States

600

1 2

164 bp

1 7

2 5

1 2

33%

Bond Spread over 

German Bonds

External Financing 

Requirement 5/

Annual Change in 

Short-Term Public 

Debt

Public Debt in 

Foreign Currency

(Basis points) 4/ (Percent of GDP) (Percent of total) (Percent of total)

0

4 0

8 0

120

160

2015 2017 2019 2021 2023 2025

Baseline Percentiles: 10th-25th 25th-75th 75th-90th

Symmetric Distribution

0

4 0

8 0

120

160

2015 2017 2019 2021 2023 2025

Restricted (Asymmetric) Distribution

no restriction on the growth rate shock

no restriction on the interest rate shock

3 is the max positive pb shock (percent GDP)

no restriction on the exchange rate shock

Restrictions on upside shocks:

3 0

4 5

1 2

29%

Public Debt Held 

by Non-Residents

(Percent of total)
Annex V. External Sector Assessment

Foreign asset 

and liability 

position and 

trajectory

Background. The net international investment position (NIIP) declined from -18.7 percent of GDP in 2010 to -38.8 percent of 

GDP in 2015, reflecting sustained current account deficits, stronger performance of the U.S. stock market relative to trading 

partners, and valuation changes of foreign currency denominated assets. 1/ Under staff’s baseline scenario, U.S. NIIP would 

deteriorate by about 10 percentage points of GDP over the next five years predominantly due to projected current account 

deficits. Potential valuation losses including from losses on FDI assets in overseas energy projects are a source of uncertainty.

Assessment. A decline in foreign demand for U.S. debt securities (for example, by a protracted failure to restore long-run fiscal 

sustainability) would raise financial stability risks, but at the same time weaken the exchange rate and strengthen the trade 

balance. Given the dollar’s reserve currency status, such financial stability concerns are limited. Most U.S. foreign assets are 

denominated in foreign currency and over 50 percent are in the form of FDI and portfolio equity claims, whose value tend to 

decline when global growth and stock markets are weak, as well as when the U.S. dollar appreciates.

Overall Assessment: 

The U.S. external position was 

moderately weaker than implied by 

medium-term fundamentals and 

desirable policies. As of May 2016

the REER has strengthened 

marginally relative to the 2015 

average, but this does not change the 

overall assessment.

The U.S. external position has 

improved considerably in recent 

years, as have assessed imbalances 

and fiscal policy gaps. Nevertheless, 

solid U.S. economic performance 

and divergence of U.S. growth and 

monetary policy prospects from key 

trading partners has led to a 

strengthening of the U.S. dollar and 

a rise in the current account deficit. 

Recommended policies:

Over the medium term, fiscal 

consolidation should aim for a 

general government primary surplus 

of about 3⁄4 percent of GDP (a 

federal government primary surplus 

of about 1 percent of GDP). 

Structural policies should be 

implemented to raise productivity, 

increase labor force growth, and, 

thus, raise saving. This would be 

consistent with maintaining external 

stability while achieving full 

employment.

Current account Background. The U.S. current account (CA) balance has narrowed from its pre-crisis height of -6 percent of GDP to -2.6

percent of GDP in 2015 (cyclically adjusted -2.6 percent as well), reflecting a sharp reduction in the fiscal deficit, higher private 

saving, lower investment in the aftermath of the financial crisis, and a stronger energy trade balance (due to the rapid increase 

of unconventional energy production). 2/ The CA deficit is expected to rise moderately but steadily from its low point in 2014

through the medium-term as the effects of a stronger U.S. economy and the lagged effects of a more appreciated U.S. dollar 

are only partly offset by lower oil prices.

Assessment. The EBA model estimates a cyclically-adjusted CA gap of 1.7 percent of GDP for 2015 which is primarily 

accounted for by a (policy-unrelated) residual. In staff’s view, the gap is moderately overstated because the estimation of the 

EBA CA norm does not fully account for the discovery of shale oil, which resulted in a substantial wealth gain. Taking this factor 

into account, the CA norm should be smaller reducing the CA gap by about 1⁄4 percent of GDP. 3/

Real exchange 

rate 

Background. The real effective exchange rate (REER) appreciated in 2015 by about 11 percent compared to 2014 due to solid 

U.S. economic performance and divergence of U.S. growth and monetary policy from key trading partners. As of May 2016, the 

REER was about 1 percent stronger than its average value over 2015. 

Assessment. Indirect estimates of the REER (relying on the EBA current account assessment) suggest the exchange was 

overvalued by almost 20 percent in 2015. Direct REER analyses suggest an overvaluation of between 14-23 percent. 4/

Considering all estimates and the uncertainties around them, staff assess the 2015 average REER to be overvalued by 10-20 

percent relative to the level implied by medium-term fundamentals and desirable policies

Capital and 

financial 

accounts: 

flows and policy 

measures

Background. Net financial inflows were about 2 percent of GDP in 2015. 5/ Portfolio inflows increased by about 0.4 percent, 

year over year, in 2015 but were offset by weaker direct investment and other inflows. On the outflow side, there were further 

increases in U.S. portfolio investment overseas, but much less so than in 2014. The stronger outlook for the U.S. economy 

compared to its key trading partners, the dollar’s reserve currency status and safe haven motives continue to boost foreign 

demand for U.S. Treasury securities. 

Assessment. The U.S. has a fully open capital account. Vulnerabilities are limited by the dollar’s status as a reserve currency 

and the U.S. role as a safe haven. 

FX intervention 

& reserves level 

Assessment. The dollar has the status of a global reserve currency. Reserves held by the U.S. are typically low relative to 

standard metrics but the currency is free floating.

UNITED STATES

74 INTERNATIONAL MONETARY FUND
Technical 

Background 

Notes

1/ The U.S. has a positive net equity position, with sizable portfolio equity and direct investment abroad, and a negative debt position vis-à-vis the rest of the world, 

owing to sizeable foreign holdings of U.S. Treasuries and corporate bonds. Gross assets and liabilities are about 140 and 180 per cent of GDP, respectively.

2/ The oil and gas portion of the CA had a deficit of 0.5 percent of GDP in 2015, 0.5 percentage points lower than in 2014, reflecting less net imports and lower oil 

prices.

3/ Because of the discovery of shale and related investments to build capacity for exports, the CA norm is estimated to be about 0.25 percent of GDP smaller than the 

one estimated by EBA, hence narrowing the gap.

4/ The two direct EBA models are the REER Index model and the REER Level model.

5/ This is substantially below pre-crisis levels of about 5.0 percent of GDP.

INTERNATIONAL MONETARY FUND 75

UNITED STATES
UNITED STATES

STAFF REPORT FOR THE 2016 ARTICLE IV 

CONSULTATION—INFORMATIONAL ANNEX

Prepared By The Western Hemisphere Department

FUND RELATIONS ____________________________________________________________________ 2

STATISTICAL ISSUES _________________________________________________________________ 4

CONTENTS

June 24, 2016
UNITED STATES

2 INTERNATIONAL MONETARY FUND

FUND RELATIONS

(As of May 31 2016)

Membership Status: Joined 12/27/1945; Article VIII

Percent

General Resources Account: SDR Million Quota

Quota 82,994.20 100.00

Fund holdings of currency 77,343.98 93.19

Reserve Tranche Position 5,651.38 6.81

Lending to the Fund

New Arrangements to Borrow 6,224.58

Percent

SDR Department: SDR Million Allocation

Net cumulative allocation 35,315.68 100.00

Holdings 35,858.57 101.54

Outstanding Purchases and Loans: None

Financial Arrangements: None

Projected Payments to the Fund:

(SDR Million; based on existing use of resources and present holdings of SDRs):

Forthcoming 

2016 2017 2018 2019 2020

Principal

Charges/Interest 1.24 1.24 1.24 1.24

Total 1.24 1.24 1.24 1.24

Exchange Rate Arrangements. The exchange rate of the U.S. dollar floats independently and is 

determined freely in the foreign exchange market. The United States has accepted the obligations 

under Article VIII, Sections 2(a), 3 and 4 of the IMF's Articles of Agreement and maintains an 

exchange system free of multiple currency practices and restrictions on the making of payments and 

transfers for current international transactions, except for those measures imposed for security 

reasons. The United States notifies the maintenance of measures imposed for security reasons under 

Executive Board Decision No. 144–(52/51). The last of these notifications was made June 3, 2016.
UNITED STATES

INTERNATIONAL MONETARY FUND 3

Article IV Consultation. The 2015 Article IV consultation was concluded on July 6, 2015 and the 

Staff Report was published as IMF Country Report No. 15/322. A fiscal Report of Observance of 

Standards and Codes was completed in the context of the 2003 consultation.

The 2016 Article IV discussions took place May 23–June 9, 2016. Concluding meetings with 

Chair Yellen of the Board of Governors of the Federal Reserve System, and Treasury Secretary Lew 

occurred on June 20 and June 21 respectively. The Managing Director, Ms. Lagarde, the Deputy 

Managing Director, Mr. Zhu, and WHD Director, Mr. Werner, participated in the concluding 

meetings. A press conference on the consultation was held on June 22, 2016. The team comprised 

Nigel Chalk (head), Yasser Abdih, Ali Alichi, Ravi Balakrishnan, Stephan Danninger, Emanuel Kopp, 

Andrea Pescatori, Damien Puy (all WHD), Christian Henn and Stefan Laseen (SPR), Thornton 

Matheson (FAD), and Emmanuel Mathias (LEG). Mr. Sabharwal (Executive Director), Mr. Haarsager 

(Senior Advisor) and Mr. Hall (Advisor) attended some of the meetings. Outreach included 

discussions with Congressional staff, U.S. Chamber of Commerce, AFL-CIO, private sector 

representatives, and think tanks. Unless an objection from the authorities of the United States is 

received prior to the conclusion of the Board’s consideration, the document will be published.
UNITED STATES

4 INTERNATIONAL MONETARY FUND

STATISTICAL ISSUES

Statistical Issues. Comprehensive economic data are available for the United States on a timely 

basis. The quality, coverage, periodicity, and timeliness of U.S. economic data are adequate for 

surveillance. The United States has subscribed to the Special Data Dissemination Standard (SDDS) 

and its metadata are posted on the Dissemination Standard Bulletin Board (DSBB).

United States: Table of Common Indicators Required for Surveillance

(As of June 23, 2016)

Date of 

latest 

observation

Date 

received

Frequency 

of data1

Frequency of 

reporting1

Frequency of 

publication1

Exchange rates Same day Same day D D D

International reserve assets and reserve 

liabilities of the monetary authorities2

2016 M5 May 26 M M M

Reserve/base money June 23 June 23 W W W

Broad money June 23 June 23 W W W

Central bank balance sheet May 26 May 26 W W W

Interest rates3 Same day Same day D D D

Consumer price index 2016 M5 June 16 M M M

Revenue, expenditure, balance and 

composition of financing4—general 

government5

2016 Q1 May 31 Q Q Q

Revenue, expenditure, balance and 

composition of financing4—central 

government

2016 M5 June 10 M M M

Stocks of central government and central 

government-guaranteed debt

2016 M5 June 6 M M M

External current account balance 2016 Q1 June 16 Q Q Q

Exports and imports of goods and 

services

2016 M4 June 3 M M M

GDP/GNP (2

nd

release) 2016 Q1 May 27 Q M M

Gross External Debt 2015 Q4 March 31 Q Q Q

International Investment Position6 2015 Q4 March 31 Q Q Q

1 Daily (D), Weekly (W), Biweekly (B), Monthly (M), Quarterly (Q), Annually (A); NA: Not Available.

2

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

3 Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, 

notes and bonds.

4 Foreign, domestic bank, and domestic nonbank financing.

5 The general government consists of the central government (budgetary funds, extra budgetary funds, and social 

security funds) and state and local governments.

6

Includes external gross financial asset and liability positions vis-à-vis nonresidents.
Statement by the IMF Staff Representative on the United States 

July 8, 2016 

1. This statement reports on information that has become available since the staff report 

was issued. It does not alter the thrust of the staff appraisal. 

2. Better activity data for the first two quarters of the year. Growth in the first 

quarter was revised up from 0.8 to 1.1 percent due to stronger net exports and non-residential 

investment. The revised estimate is broadly in line with staff’s expectation based on high 

frequency activity indicator models. Real private consumption expenditure (PCE) for April 

and May grew by 0.8 and 0.3 percent m/m, respectively. The strong spending momentum and 

upward revision to first quarter growth strengthen the basis for staff’s growth forecast of 

2.2 percent in 2016. 

3. Uncertainty surrounding the implications of the U.K. referendum. U.S. markets 

reacted negatively to the result of the U.K. referendum. After a sell-off in risk assets in the 

first two days, U.S. stock markets have recovered and the U.S. dollar, in nominal effective 

terms, has appreciated by less than 1 percent. Long-term treasury yields have fallen 

substantially to 1.4 percent on 10-year bonds, driven by safe haven flows and expectations of 

a slower pace of future policy rate increases. Continued bouts of financial market volatility or 

a further appreciation of the U.S. dollar are possible. The team expects the impact on the 

baseline to be small but because of uncertainty about the economic fallout, risks to the 

outlook appear now as skewed to the downside. Should downside risks materialize, interest 

rate increases should be delayed in line with a data dependent approach. Near-term fiscal 

spending could be increased in the event that growth decelerates substantially. 

4. On June 30, the President signed a bill to provide a framework to restructure 

Puerto Rico’s debt. The Puerto Rico Oversight, Management, and Economic Stability Act 

(“PROMESA”) puts in place an oversight board for the Commonwealth, imposes a stay on 

creditor action, and establishes a collective action mechanism for restructuring existing 

bonds. The collective action mechanism allows creditors holding over two-thirds of the 

outstanding principal of the bonds within a pool to bind the minority. In the event a voluntary 

restructuring agreements cannot be reached, the law provides for a U.S. court-supervised 

restructuring process (replicating a number of the provisions of the Federal Bankruptcy 

Code). After passage of the law, Puerto Rico defaulted on US$1.9 billion of debt obligations. 

5. The Federal Reserve published results of its 2016 Comprehensive Capital 

Assessment Program (CCAR). Owing mainly to strengthened capital buffers, all 33 

participating bank holding companies passed the supervisory stress test, which was based on 

stringent scenarios including a long recession and negative yields on U.S. Treasuries. 

However, the Federal Reserve objected to the capital plans of U.S. subsidiaries of Deutsche 

Bank and Banco Santander on the basis of qualitative factors related to capital planning.