© 2020 International Monetary Fund

IMF Country Report No. 20/241

UNITED STATES

2020 ARTICLE IV CONSULTATION—PRESS RELEASE; 

STAFF REPORT; AND STATEMENT BY THE EXECUTIVE 

DIRECTOR FOR UNITED STATES

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 2020 Article IV consultation with 

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 31, 2020 consideration of the staff report that concluded the Article IV 

consultation with United States.

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

consideration on July 31, 2020, following discussions that ended on July 16, 2020, with 

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

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

on July 17, 2020.

• An Informational Annex prepared by the IMF staff.

• A Staff Statement updating information on recent developments.

• A Statement by the Executive Director for United States.

The documents listed below have been or will be separately released.

Financial Stability System Assessment

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

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International Monetary Fund

Washington, D.C.

August 2020
PR20/279

IMF Executive Board Concludes 2020 Article IV Consultation 

with United States

FOR IMMEDIATE RELEASE

WASHINGTON, DC – August 10, 2020: The Executive Board of the International Monetary 

Fund (IMF) concluded the Article IV consultation1 with United States.

The economic outlook has shifted dramatically with the rapid spread of COVID-19. [135,000] 

Americans have tragically lost their lives and many more have become seriously ill. The 

sudden-stop in activity, arising from the shutdown, has caused an abrupt contraction in activity 

and a surge in unemployment. The unemployment rate now stands at 11.1 percent and 15

million Americans have lost their job over the past four months. These job losses have 

disproportionately affected lower income households, those without a college education, 

women, African Americans and Hispanics, many of whom have insufficient buffers to cope 

with the unprecedented size of the economic shock. The economy is expected to contract by 

around 61⁄2 percent in 2020 and expand by around 4 percent in 2021.

There has been a strong and proactive response to this unprecedented shock to the economy. 

Congress moved swiftly to provide substantial assistance to households, businesses and state 

and local governments. These important fiscal efforts have, however, come at a substantial 

cost. The federal government primary deficit is expected to rise from around 3 percent of GDP 

in FY2019 to 16 percent of GDP in FY2020 and the federal debt is expected to approach 100 

percent of GDP by end-2020. State and local government deficits are also expected to morethan-double in size this year.

The Federal Reserve also reacted quickly as the scale of the burgeoning pandemic became 

clear. In an unscheduled meeting on March 15, the Federal Open Market Committee (FOMC)

lowered the federal funds target range to 0 to 1⁄4 percent and indicated it would maintain rates 

at this level until it is confident that the economy has weathered recent events and is on track 

to achieve the Fed’s maximum employment and price stability goals. There was a significant 

increase in Fed purchases of Treasury and agency mortgage backed securities, new credit 

facilities were launched to backstop institutions and ensure the smooth functioning of a range 

of financial markets, and the Fed expanded bilateral swaps with a range of central banks to 

normalize conditions in dollar funding markets. 

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.
Executive Board Assessment2

Executive Directors broadly agreed with the thrust of the staff appraisal. They expressed 

sympathy for the loss of lives and economic hardship caused by the COVID-19 pandemic. 

They commended the authorities for their swift, extraordinary policy response to protect 

livelihoods and vulnerable sectors of the economy. Directors noted that the recovery will likely 

be gradual and subject to significant risks and uncertainty. Amid the resurgence in COVID-19 

cases, a deep economic recession, and surging unemployment, Directors underscored the 

need to deepen public health efforts while continuing to use all policy tools to support the 

recovery and mitigate the scarring effects of the pandemic on the U.S. economy and society.

Directors welcomed the range of fiscal measures to provide essential lifelines to households, 

businesses, the healthcare sector, and sub-national governments. They agreed that an 

additional sizable fiscal package would be needed to strengthen health preparedness and 

sufficiently boost demand, including through increased federal transfers to state and local 

governments. Directors recognized that, once the pandemic is fully contained, medium-term 

fiscal adjustment will be necessary to put debt on a downward path. They welcomed the 

authorities’ commitment to high levels of transparency and accountability in the use of public 

resources.

Directors noted that the pandemic has affected low-income households disproportionately, 

further exacerbating poverty and inequality. They recommended gearing fiscal policy toward 

strengthening the social safety net, incentivizing work, expanding healthcare coverage, and 

broadening access to quality education. 

Directors appreciated the Federal Reserve’s decisive response in the early stage of the crisis, 

which had helped maintain the smooth functioning of financial markets, ease financial 

conditions, and relieve strains in global dollar funding markets. With inflation and employment 

likely to remain below targets for an extended period, Directors saw scope for more action, 

including through expanded asset purchases and more explicit forward guidance, while 

closely monitoring potential risks to financial stability.

Directors encouraged the U.S. authorities to reverse trade restrictions and to work 

constructively with partner countries to resolve trade tensions and modernize the multilateral 

trading system. Many Directors noted that the planned introduction of currency-based 

countervailing duties could increase policy uncertainty, have negative spillovers, and 

undermine the multilateral trading and international monetary systems.

Directors observed that the U.S. financial system has been resilient in the face of the recent 

economic and financial shock. They called for continued vigilance given risks from the 

recession, rising corporate leverage, a continued migration of activity to nonbank financial 

institutions, and complex interlinkages among institutions and markets. Directors emphasized 

the need to preserve bank capital buffers and stringency of prudential requirements, enhance 

macroprudential tools, intensify crisis preparedness, and address data gaps. They also 

recommended that the authorities consider strengthening institutional arrangements for 

systemic risk oversight and introducing a more explicit financial stability mandate for principal 

regulators.

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. 
United States: Selected Economic Indicators

Projections

2018 2019 2020 2021 2022 2023 2024 2025

Real GDP (% change from previous period) 2.9 2.3 -6.6 3.9 3.3 2.3 1.9 1.8

Real GDP (q4/q4) 2.5 2.3 -6.9 5.1 2.8 2.0 1.9 1.8

Output gap (% of potential GDP) 0.2 0.9 -4.9 -1.8 -0.6 -0.4 -0.4 -0.5

Unemployment rate (q4 avg.) 3.8 3.5 9.7 7.4 5.7 4.6 4.3 4.2

Current account balance (% of GDP) -2.2 -2.2 -2.2 -2.1 -2.1 -2.1 -2.0 -2.0

Fed funds rate (end of period) 2.2 1.7 0.1 0.1 0.1 0.1 0.1 0.1

Ten-year government bond rate (q4 avg.) 3.0 1.8 0.8 1.0 1.5 1.7 1.8 1.8

PCE Inflation (q4/q4) 1.9 1.4 0.7 2.1 2.0 2.0 2.0 2.0

Core PCE Inflation (q4/q4) 1.9 1.6 0.8 1.8 1.9 1.9 1.9 1.9

Federal fiscal balance (% of GDP) -3.8 -4.6 -18.0 -10.4 -5.4 -4.5 -4.7 -4.9

Federal debt held by the public (% of GDP) 77.4 79.2 99.6 107.4 106.8 106.8 107.4 108.3

Sources: BEA; BLS; Haver Analytics; and IMF staff estimates.
UNITED STATES

STAFF REPORT FOR THE 2020 ARTICLE IV CONSULTATION

KEY MESSAGES

The U.S. is in the midst of an unprecedented social and economic shock. The 

longest expansion in U.S. history has been derailed by the unanticipated advent of 

COVID-19. To preserve lives and support public health, it was necessary to put in place 

a broad-based shutdown of the U.S. economy in March. Despite the gradual easing of 

state lockdown restrictions and lifting of stay-at-home orders starting in late April, the 

collateral economic damage has been enormous. First, and foremost, as of July 16, 

more than 136,000 Americans have tragically lost their lives and many more have 

become seriously ill. Almost fifteen million Americans have lost their jobs, many small 

and large businesses are under financial stress, and future prospects are highly 

uncertain. Reopening decisions will have to be handled carefully to mitigate the 

economic costs while containing the ongoing rise in COVID-19 infection rates. It will 

likely take a prolonged period to repair the economy and to return activity to prepandemic levels. All in all, globally there will be difficult months and years ahead and it 

is of particular concern that the number of COVID-19 cases in the U.S. is still rising.

The poorest households face particularly precarious prospects. The economic costs 

of the crisis are being borne disproportionately by the poor and vulnerable, bringing 

into stark relief deep inequities that have long afflicted the U.S. The pandemic has also 

underscored some of the structural shortcomings of the U.S. health system whereby the 

provision of healthcare is fragmented, decentralized, predominantly employer-based, at 

high cost, and with a significant share of low-income households lacking coverage. The 

nature of the pandemic has created particularly large strains for labor intensive, face-toface services (which tend to employ a large share of lower-income workers) and the 

unemployment rate among lower income households, that have few financial buffers, is 

expected to remain high for a protracted period. Poverty rates and other social strains 

are expected to exceed those that were experienced in the wake of the global financial 

crisis. 

A forceful policy response has been put in place. U.S. policymakers have acted 

quickly and assertively to protect livelihoods and businesses and to mitigate the lasting 

economic costs of the pandemic. The Federal Reserve took unprecedented steps to 

provide monetary stimulus, to underpin the smooth functioning of domestic and 

July 17, 2020
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2 INTERNATIONAL MONETARY FUND

international financial markets, to support the flow of credit, and to strengthen the transmission of 

monetary policy. At the same time, a range of fiscal measures were put in place to assist small 

businesses and specific sectors (such as airlines), increase resources to healthcare providers, expand 

unemployment insurance, create incentives for firms to retain workers, transfer cash directly to 

households, and provide resources to state and local governments.

Further policy efforts will be needed to counter the pandemic and also address a range of 

deep-rooted social and economic challenges that continue to afflict the U.S. Prior to the 

pandemic, even after a decade-long expansion, the U.S. faced troubling social and economic 

outcomes related to poverty; inequalities of opportunity and declining socioeconomic mobility; an 

increasingly polarized income distribution; rising barriers to trade and foreign investment; and an 

unsustainable medium term path for public debt. It will be important, therefore, to ensure that 

policy solutions put in place to tackle the consequences of the pandemic are simultaneously geared 

toward reshaping the existing systems for social assistance, education and healthcare (to expand 

opportunities and lessen inequities); investing in infrastructure; helping create more open, stable, 

and transparent trade policies, underpinned by a strengthened international system; and, over the 

medium-term, putting the public debt-GDP ratio on a downward path.

Pursuing these multiple objectives will require a further round of fiscal measures in the 

coming months that boost demand, increase health preparedness, and support the most 

vulnerable. The U.S. has some fiscal space and it should be deployed quickly to hasten the recovery

from the second quarter contraction, permanently improve the social safety net, and facilitate a 

broader remaking of the U.S. economy. Efforts are also needed to prepare for future health crises (or 

for a resurgence in COVID-19) and ensure that those without medical insurance have access to 

affordable, quality health care. 

There is also potential to bolster the monetary support that has already been put in place to 

more quickly return the economy to full employment and 2 percent inflation. In the coming 

months, asset purchases could be scaled up to increase policy stimulus and the Federal Reserve 

could adapt its forward guidance to more firmly anchor market expectations about the future path 

for policy. These actions could potentially be supported by the introduction of yield curve control. 

The current credit and liquidity facilities should be regarded as emergency tools and should be 

phased-out (as planned). The risk-reward trade-off does not appear to favor the introduction of 

negative policy rates in the U.S. context. 
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INTERNATIONAL MONETARY FUND 3

Efforts should be made to reverse existing trade restrictions and tariff increases while 

working with partner countries to address policies that distort trade flows and investment 

decisions. There is a clear need to address longstanding global trade and investment distortions in 

areas such as tariffs, farm subsidies, industrial subsidies, and services trade. However, the imposition 

of import tariffs (and other steps taken by the administration) is undermining the openness and 

stability of global trade by increasing restrictions on trade in goods and services, and catalyzing a 

cycle of retaliatory trade responses. The imposition of countervailing duties on imports from 

countries that the Department of Commerce finds to have an undervalued currency represents a 

significant risk to the multilateral trade and international monetary system which could potentially 

escalate trade tensions harming the U.S. economy and having negative spillovers for other countries.

Instead, the U.S. should work constructively with its trading partners to better address these 

underlying distortions.

There is space to further improve financial oversight. The priorities should include introducing an 

explicit financial stability mandate for the principal regulators, increasing the budgetary 

independence of the Commodity Futures Trading Commission, Securities and Exchange Commission

and state-level insurance regulators, developing macroprudential policies to mitigate the growing 

vulnerabilities outside of the core banking system, and intensifying the crisis preparedness function 

of the Financial Stability Oversight Council. There is scope to improve risk management and the 

stress testing of central counterparties as well as to transition to principles-based reserving and 

develop consolidated group capital requirements for insurers. Prudential requirements for noninternationally active banks should be reviewed to ensure that they are, and continue to be, broadly

consistent with the Basel capital framework and appropriate liquidity and concentration limits. 

Finally, important data gaps continue to obscure regulators’ visibility on the nature of systemic 

interconnections and vulnerabilities; this will require sustained efforts to address.
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4 INTERNATIONAL MONETARY FUND

Approved By

Nigel Chalk and 

Tamim Bayoumi

Discussions took place by video conference during July 6-13, 2020. 

The Article IV team has also worked closely with the FSAP team over 

the past year. Concluding meetings with Chair Powell and Secretary 

Mnuchin were held on July 15 and 16, 2020, respectively. Staff’s 

assessment is based on information available as of July 10, 2020. The 

team comprised of Nigel Chalk (head), Carlos Caceres, Li Lin, Javier 

Ochoa, Dan Pan, Suchanan Tambunlertchai, Yannick Timmer, Anke 

Weber, and Peter Williams (all WHD), Jean-Marc Fournier and Ian 

Parry (FAD), Nico Valckx (RES), and Diego Cerdeiro (SPR). 

CONTENTS

THE PRE-COVID LANDSCAPE ___________________________________________________________________6

THE POLICY RESPONSE TO THE CRISIS_________________________________________________________9

A. Federal Reserve Actions _______________________________________________________________________14

B. Fiscal Actions __________________________________________________________________________________16

OUTLOOK AND RISKS TO THE RECOVERY ___________________________________________________ 20

THE FUTURE DIRECTION OF FISCAL POLICY _________________________________________________ 26

A. Tax Policies____________________________________________________________________________________26

B. Tackling Poverty and Supporting Displaced Workers__________________________________________27

C. Public Health__________________________________________________________________________________31

D. Support for State and Local Governments ____________________________________________________31

E. Infrastructure __________________________________________________________________________________31

F. Boosting Consumption ________________________________________________________________________32

G. Transparency and Accountability______________________________________________________________32

H. Medium-term Measures to Reverse the Increase in Public Debt ______________________________33

OPTIONS FOR ADDITIONAL MONETARY STIMULUS ________________________________________ 37

A. Asset Purchase Programs _____________________________________________________________________37

B. Forward-Guidance ____________________________________________________________________________38

C. Yield Curve Control ___________________________________________________________________________38

D. Negative Interest Rates _______________________________________________________________________39

E. Expanded Lending or Increased Purchases of Marketable Securities __________________________40

FINANCIAL SYSTEM OVERSIGHT _____________________________________________________________ 41
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INTERNATIONAL MONETARY FUND 5

TRADE POLICY_________________________________________________________________________________ 43

GOVERNANCE AND TRANSPARENCY ________________________________________________________ 44

STAFF APPRAISAL _____________________________________________________________________________ 45

BOXES

1. Reading “the Stars“_____________________________________________________________________________ 7

2. The Impact of Re-opening on Activity—A State-Level Perspective ____________________________11

3. Impact of the Pandemic on the U.S. Oil Sector ________________________________________________13

4. Federal Reserve 13(3) Facilities ________________________________________________________________16

5. Fiscal Response to the Pandemic ______________________________________________________________19

6. Liquidity and Solvency Prospects for the Corporate Sector ____________________________________25

7. Potential Size of the Needed Fiscal Stimulus—A Buffer-Stock Model Approach_______________29

8. The Impact of Covid-19 on State Budgets _____________________________________________________34

9. An Historic Opportunity to Transition to a Lower-Carbon Economy ___________________________35

TABLES

1. Selected Economic Indicators _________________________________________________________________48

2. Balance of Payments __________________________________________________________________________49

3. Federal and General Government Finances____________________________________________________50

4. Core Financial Soundness Indicators for Deposit Takers_______________________________________51

APPENDICES

I. External Sector Assessment ____________________________________________________________________52

II. Risk Assessment Matrix________________________________________________________________________53

III. Public Debt Sustainability Analysis____________________________________________________________55

IV. External Debt Sustainability Analysis__________________________________________________________62
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6 INTERNATIONAL MONETARY FUND

THE PRE-COVID LANDSCAPE

1. The U.S. began 2020 in the midst of the longest expansion on record. Over the past 

decade, the U.S. economy had steadily grown, improving living standards for much of the 

population. Unemployment was at a 50-year low, labor force participation was rising (as a tight 

labor market drew workers into employment), and real wages were going up, notably for those at 

the lower end of the income distribution. All-in-all, the economy appeared to be in a favorable 

situation with output close to potential, unemployment near the natural rate, and policy settings at

neutral (Box 1). 

2. Even with these favorable economic outcomes, however, poverty remained stubbornly

high. The latest data indicate that 38 million Americans (around 12 percent of the population) were 

living in poverty in 2018 and poverty rates were particularly high for female-headed households and 

those without a college degree.

3. Recent protests have underscored the continuing struggle with racial inequities in the

U.S. These are evident across a range of socio-economic outcomes: the median income and net 

wealth of African American and Hispanics is well below that for Whites, poverty rates are far higher, 

and educational attainment is lower. African Americans face much higher rates of incarceration and 

are far more likely to lack health insurance. 

Selected Socio-Economic Indicators (by Race/Ethnicity)

Overall White, not 

Hispanic

African 

American

Hispanic

Unemployment rate (June 2020) 11.1 10.1 15.4 14.5

Unemployment rate (February 2020) 3.5 3.1 5.8 4.4

Official poverty measure (2018) 11.8 8.1 20.8 17.6

For population aged under 18 16.2 8.9 29.5 23.7

For high school education only 13.1 10.1 22.8 14.6

Families with female head of household 26.8 20.6 31.7 31.1

Supplementary poverty measure (2018) 1 12.8 8.7 20.4 20.3

Median household income (US$ thousand, 2018) 63.2 70.6 41.4 51.5

Median household net wealth (US$ thousand, 2016) 97.3 171.0 17.6 20.7

Public high school graduation rate (2018) 2 85 89 79 81

Share of 25-29 year-olds with bachelor’s degree (2019) 39 45 29 21

Incarceration rate (2018, per 1000 adult population) 0.56 0.27 1.5 0.8

Non-elderly population without health insurance (2018) 10.4 7.5 11.5 19.0

COVID-19 death rate (per 100,000 population)3 36.8 30.2 69.7 33.8

1

Incorporates impact of federal assistance programs and subtracts necessary expenses (such as taxes and medical 

expenses).

2 Share of students in cohort who graduate within 4 years with a regular high school diploma.

3 Break down by race available for 40 states and the District of Columbia which provide data. Data as of July 7, 2020. 

Sources: Bureau of Justice Statistics, Census Bureau (American Community Survey), Centers for Disease Control and 

Prevention, National Center for Education Statistics, Federal Reserve Survey of Consumer Finances.
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INTERNATIONAL MONETARY FUND 7

Box 1. Reading “the Stars”

The objective of this modeling exercise is to estimate a consistent parameterization of the steady 

state equilibrium for the U.S. (i.e., with inflation at 2 percent, wage growth equal to trend 

productivity growth plus long-run inflation expectations, the federal funds rate at the neutral rate, 

unemployment at the NAIRU, and output equal to potential). The model incorporates an ISrelationship to describe the business cycle, a Philips Curve that relates inflation to the output gap, 

and a Taylor Rule describing movements in the federal funds rate. It uses a factor approach to 

incorporate a broader range of indicators of activity, inflation, underutilization of labor, and wages

than in similar approaches. The structural relationships and additional data generate more precise 

estimates, with similar or lower degrees of instability in real-time use, than similar models. 

The results suggest that, since 2000, the U.S. economy has consistently operated below full 

capacity. Following the 2008-9 recession, it moved further away from potential than is typically 

assessed and only reached full employment in late 2018. This is corroborated by a lack of wage 

and price pressures, even at very late stages in the cycle. Since the mid-1990s, the neutral rate of 

interest has declined substantially in inflation-adjusted terms. Potential growth has experienced a 

secular decline after the dot-com bust (but saw some modest increase in the last few years as 

investment picked up and labor force participation rose). Taken together, these estimates suggest 

that prior to the COVID-19 pandemic, the U.S. economy can be characterized as being close to its 

balanced growth path.

1 See P. Williams, Y. Abdih, and E. Kopp “Reading the Stars” IMF Working Paper No. 20/136.

-10

-8

-6

-4

-2

0

2

4

1990 1995 2000 2005 2010 2015

Output Gap Estimates 

(percent of potential)

Current

Prior estimates

-1

0

1

2

3

4

5

1990 1995 2000 2005 2010 2015

Interest and growth rates

(percent)

Neutral real rate (r*)

Potential growth (g*)
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8 INTERNATIONAL MONETARY FUND

4. A decade of low interest 

rates and steady economic

expansion has led to a rise in 

balance sheet vulnerabilities. The 

banking system entered 2020 wellcapitalized and with substantial

liquidity buffers (see the 2020 Financial 

System Stability Assessment). The most 

salient financial stability concern stems 

from high levels of corporate leverage

and a weakening of underwriting 

standards across a range of corporate 

liabilities. The debt of non-financial 

corporates was 47 percent of GDP at 

end-2019. Of this amount, 25 percent 

of GDP was in the form of investment 

grade corporate bonds and 

commercial paper with a further 14 

percent of GDP in non-investment 

grade bonds and leveraged loans. 

Most of this debt is being held by 

nonbank investors. Despite these relatively high levels of indebtedness, vulnerabilities have been 

mitigated to some extent by the debt being issued on relatively favorable terms and, in many cases,

the indebted companies hold significant amounts of liquid assets. 

5. Trade restrictions and tariffs have risen and trade policy uncertainties over the past 

few years have been high, with negative consequences for the U.S. and global activity. The U.S. 

has put tariffs on steel, aluminum, and certain household appliances. Despite the January agreement 

with China to de-escalate tensions, 25 percent tariffs were kept on around US$200 billion of imports 

from China. There are also ongoing disputes with member states of the European Union (over digital 

taxation, subsidies to Airbus, and autos). Finally, in February, the Department of Commerce finalized 

a rule that allows currency undervaluation to be considered as a countervailable subsidy, creating 

uncertainty about the exchange rate analysis that would underpin application of the rule and 

potentially resulting in countervailing duties. On the positive side, the U.S., Mexico and Canada 

Agreement has come into effect on July 1, 2020, alleviating trade uncertainty within the trading 

block and provided some degree of modernization in services, e-commerce, and data transparency 

(although the agreement contained more stringent rules-of-origin requirements). 
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INTERNATIONAL MONETARY FUND 9

THE POLICY RESPONSE TO THE CRISIS

6. The economic outlook shifted dramatically with the rapid spread of COVID-19. As the 

number of cases multiplied, first in China and subsequently in Europe, U.S. asset markets sold off 

and portfolios were rapidly reallocated toward safe and liquid assets. The market movements were 

jarring with the equity markets falling by one-third over the space of the month and the 10-year 

Treasury yield falling by around 100 basis points. Systemic liquidity problems also began to emerge 

in a range of U.S. asset markets (including in the market for U.S. Treasuries) as well as in overseas 

dollar funding markets. By mid-March, the number of identified cases in the U.S. began to accelerate 

upwards and, as in many other countries facing similar circumstances, states began issuing stay-athome orders. This was part of a concerted, necessary effort to contain the spread of the virus and 

protect the elderly and those with underlying medical conditions. 

7. The resulting sudden-stop in activity from the shutdown caused unemployment to 

surge. The unemployment rate rose from 3.5 percent in February to 14.7 percent in April (close to 

20 percent, once misclassification errors are taken into account1) and the labor force participation 

rate fell from 63.4 percent in February to 60.2 percent in April. In the space of just two months, 

unemployment went from a 50-year low to its highest level in close to 90 years as over 25 million 

Americans lost their job. In the subsequent months, labor market conditions have improved: the 

unemployment rate fell to 11.1 percent by June (even as misclassification errors have been reduced) 

and the employment-population ratio rose to 54.6 percent (close to the previous historical low 

which occurred shortly after World War II). Job losses have disproportionately affected lower income 

households, those without a college education, women, African Americans and Hispanics, many of 

whom have insufficient buffers to cope with the unprecedented size of the economic shock. In 

addition, of particular importance given the public health crisis that has triggered the jump in 

unemployment, many of these workers potentially face losing their employer-provided health 

insurance along with their jobs2.

8. Output is expected to contract by 37 percent in the 

second quarter but there are signs that the collapse in activity has

bottomed out. Personal consumption spending fell by 18 percent 

between February and April with particularly acute contractions in the 

consumption of labor-intensive services that involve face-to-face 

interactions like restaurants, hotels, and retail. The weakness in 

consumer demand appears largely driven by a fall in discretionary 

spending by high-income individuals (mostly on services). There was a 

bounce-back in activity in May, as businesses reopened and begin to 

rehire workers, and consumption grew by 8 percent between April

1 Some workers, who were not at work during the reference week for the household survey data collection, were 

classified as employed but absent from work. However, analysis by statisticians at the Bureau of Labor Statistics 

suggests that many of these workers should have been classified as unemployed on temporary layoff.

2

Laid-off workers, or those whose hours have been reduced, can opt to continue their coverage for a limited period

but are typically required to pay the insurance premium themselves.
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10 INTERNATIONAL MONETARY FUND

and May. There has been significant variability in both the path for the virus and the activity 

outcomes across the states (Box 2). Furthermore, the drop in global oil prices is having important 

implications for both investment and production in the U.S. oil sector (Box 3).

9. Household saving has risen to very high levels. In May, households saved 23 percent of 

disposable income (up from a saving rate of around 8 percent prior to the pandemic). This spike in 

personal saving has been a result of both compressed consumption and the large boost to 

household income arising from government transfers to households (both the direct economic 

impact payments and the expanded unemployment insurance that were part of the Coronavirus Aid, 

Relief, and Economic Security (CARES) Act). While it is too early to assess the likely medium-term

behavioral response to these government transfers, analysis of past direct payments to households 

in the U.S. suggest these payments do not typically translate into a significant boost to 

consumption.3 On the other hand, supplemental unemployment benefits are expected to support 

consumption for those households facing reduced hours or unemployment.

10. The external position was moderately weaker than the level implied by medium-term 

fundamentals and desirable policies in 2019 (Annex I). In the next few years, an increase in

private-sector saving and a decline in investment is expected to offset the increased fiscal deficit. 

This would imply a current account deficit of around 2 percent of GDP in the coming years. 

However, there is significant uncertainty surrounding this forecast.

3

For example, Sahm, Shapiro, and Slemrod (2012) find that only between 20 and 30 percent of households used 

previous direct transfers for spending (the majority went toward paying down debt).
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INTERNATIONAL MONETARY FUND 11

Box 2. The Impact of Re-opening on Activity—A State-Level Perspective

Mobility—a de facto measure of reopening—has picked up at a relatively steady pace. Mobility linked 

to retail and recreation activity declined by around 40 percent during the full-lockdown period, largely 

occurring prior to governments issuing stay-at-home orders (a similar pattern emerges looking at 

reservations on Opentable). More recently, mobility started rising even before restrictions were loosened. 

This suggests that individuals’ changing concerns about their health or their economic well-being—rather 

than statutory decisions—have been a key constraint in determining the pace at which activity returns

(although it remains unclear how expectations about changes to stay-at-home orders are influencing

mobility behavior).

1 Corroborating other data, the decline in mobility has had particularly large effects on the 

employment of low income workers and on discretionary consumption (such as elective health care, hotels, 

and restaurants), particularly of higher income households.
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12 INTERNATIONAL MONETARY FUND

Box 2. The Impact of Re-opening on Activity—A State-Level Perspective (Concluded)

The extent of job losses is correlated with the decline 

in mobility only for those states where their mix of 

activities utilizes a relatively low level of IT. While all 

states have seen significant job losses, the increase in 

unemployment in states that are strong adopters of IT has 

shown little correlation with the degree to which mobility 

fell. More technology-oriented states seem able to shift 

quickly to working-from-home modalities and, in doing 

so, their job losses were less sensitive to declines in 

mobility.2 This would suggest that there will be a 

significant tradeoff to be weighed in states that are less IT 

intensive between the speed of reopening, public health 

outturns, and the size of job losses they are willing to accept (given that a larger share of activity will require 

the physical presence of workers).

Policymakers will continue to need to carefully 

manage the public health risks from reopening. 

There is emerging evidence of an increased spread of 

the virus around 30 days after stay-at-home orders are 

loosened. However, the causal link is complicated by the 

increased rate of testing that has been taking place over 

the same period and the significant heterogeneity in 

state experiences. Nonetheless, it seems clear that lifting 

restrictions too quickly risks a renewed increase in 

infection rates which, in turn, could necessitate a pause 

or reversal of reopening decisions (with negative 

implications for employment and activity).

1 See also S. Chen, D. Igan, N. Pierri, and A. Presbitero, “Tracking the Impact of COVID-19 and Mitigation Policies in Europe and 

the United States’, IMF Working Paper, 2020. 

2 The results are similar controlling for state-level characteristics (e.g. GDP per capita, population density, industry composition).
UNITED STATES

INTERNATIONAL MONETARY FUND 13

Box 3. Impact of the Pandemic on the U.S. Oil Sector1

The global COVID-19 outbreak abruptly reversed the 

upward trend in global oil prices. The COVID-19 

outbreak led to severe lockdown measures worldwide, 

limiting mobility and hitting hard the transport sector 

(which accounts for 60 percent of oil demand). The WTI 

spot price fell to unprecedented levels in April, impacting

oil and gas producers and leading to a dramatic cut in 

worldwide oil production and investment. The WTI spot 

price subsequently recovered but remains 40 percent 

below pre-COVID levels. 

The fall in prices has severely damaged the financial health of many U.S. shale producers and oil field 

service companies. Current market pricing would imply a negative outlook for shale oil investment,

particularly for those companies with large debt refinancing needs. Yields on oil company debt remain at 

exceptionally high levels and energy firm bankruptcies have risen to a decade-long high. So far, 215 oil firms 

and 204 servicing firms have filed for bankruptcy and the 

1-year ahead probability-of-default across U.S. energy 

firms reached a record high in March. The average breakeven price for new shale oil wells in the U.S. (of around 

US$45) makes much of new U.S. production noneconomic. Already oil rig counts have fallen to a record 

low. However, the break-even for existing production is 

somewhat lower (around US$25). The Energy Information 

Administration expects U.S. oil production to fall in 2020 

and 2021 for the first time since 2016 (from 12.3 mb/d in 

2019 to 10.8 mb/d by 2021). 

The U.S. shale oil and gas industry will likely face more difficulty adapting to the current 

circumstances than during the 2014-16 drop in oil prices. In 2014, oil prices moved down from very high 

levels but then fairly quickly rebounded to above break-even prices, allowing production to rebound. The 

lower prices also prompted significant cost reductions and efficiency gains as the sector restructured. Any oil 

price forecast is subject to significant uncertainty but, given the nature of the shock, prices are expected to 

stay compressed for longer than in 2014. The sector has also taken on significant amounts of leverage

relative to 2014 (prompted by historically loose financial conditions). Furthermore, depending in part on 

policy actions that are taken, COVID-19 has the potential to trigger an accelerated shift to a lower carbon 

economy (which would structurally lower demand). Such an environment may mean that many higher-cost 

U.S. producers are non-viable (possibly permanently) and the number of bankruptcies (or possibly 

acquisitions) is likely to continue rising. 

The impact of lower oil prices on consumption is likely to be relatively muted. During the last 

significant oil price decline, the elasticity of consumption to lower oil prices had already fallen relative to

past oil price cycles (see Box 1 of the 2016 Article IV report). In addition, in this cycle, the transmission of 

lower oil prices to the economy via financial conditions and confidence is likely to be swamped by the 

broader impacts of the pandemic and the associated policy response. As such, it is likely to prove difficult to 

identify a measurable positive effect of lower oil prices on consumption even in the ex post data. 

1 Authored by Nico Valckx (RES).

0

25

50

75

100

125

0

5

10

15

20

25

2014 2016 2018 2020

$/bbl

Percent

Bond Spreads and Brent Oil Price

HY Energy

HY Corporate

Brent (RHS)

Source: ICE BAML, Thomson Reuters DataStream

0

20

40

60

80

100

120

4

6

8

10

12

14

2014 2016 2018 2020 2022

$/bbl

Million barrels per day

U.S. Oil Production and Oil Price

Oil production STEO (June 6)

WTI (RHS)

Sources: Bloomberg; EIA; Baker Hughes; and IMF estimatesh
UNITED STATES

14 INTERNATIONAL MONETARY FUND

A. Federal Reserve Actions

11. The Federal Reserve reacted quickly as the scale of the burgeoning pandemic became 

clear. In an unscheduled meeting on March 15, the FOMC lowered the federal funds target range to 

0 to 1⁄4 percent and indicated it would maintain rates at this level until it is confident that the 

economy has weathered recent events and is on track to achieve the Fed’s maximum employment 

and price stability goals. To support the smooth functioning of fixed income markets the Fed 

significantly increased its holdings of Treasury and agency mortgage backed securities and 

undertook large-scale overnight and 

term repo operations. This caused the 

Fed balance sheet to expand by around 

US$2 trillion between mid-March and 

mid-April, and to continue to grow 

rapidly thereafter. These efforts were 

very effective in rapidly normalizing 

liquidity conditions and market 

functioning in key fixed income markets. 

This also had positive spillover effects 

by easing financial conditions globally 

and increasing access to new loans for a 

range of overseas sovereign and 

corporate borrowers. 

12. To reduce strains in global dollar funding markets, the Fed expanded its swap lines 

with a range of central banks and established a temporary repo facility for foreign and 

international monetary authorities with accounts at the Federal Reserve Bank of New York.

The new swap lines included those with Australia, Brazil, Denmark, Korea, Mexico, New Zealand, 

Norway, Singapore, and Sweden. In addition, the cost of the swap lines was reduced, and their

maturity was extended. 

0

25

50

75

100

125

150 -120

-100

-80

-60

-40

-20

0

Jan 1 Feb 1 Mar 1 Apr 1 May 1 Jun 1

EM Average

Yen

Euro

Source: Bloomberg. Note: EM currencies include: HKD, 

MYR, MXN, RUB, SGD, THB, and ZAR.

Cross-Currency Basis Swaps 

(5y swaps, basis points)

Dollar swap lines 

expanded to select 

EMs

70

80

90

100

110

Jan 1 Feb 1 Mar 1 Apr 1 May 1 Jun 1

EM ETF and Mutual Fund Holdings

(100 = Dec 2019 average levels)

Equities

Bonds

Source: EPFR

0

1

2

3

4

5

6

7

8

2008 2010 2012 2014 2016 2018 2020

Fed Securities Holdings (US$ trillions)

Other assets (inc. liquidity support)

CB swap lines

Agency MBS

USTs

Source: Federal Reserve Board of Governors

Note: GFC-era programs are shown on their initial announcement 

QE1 QE2 QE3
UNITED STATES

INTERNATIONAL MONETARY FUND 15

13. During the second half of March, the Fed announced new facilities to support credit 

markets and to directly lend to non-financial entities. Section 13(3) of the Federal Reserve Act 

permits the Fed, in unusual and exigent circumstances, to provide liquidity to the financial system by 

discounting the liabilities of individuals, partnerships, and corporations. Supported by funding from 

the CARES Act, the emergency lending facilities that were introduced (Box 4) were structured around 

either (i) a Fed standing facility providing liquidity to financial institutions, collateralized by specific 

assets; (ii) providing Fed liquidity to a special-purpose vehicle which, in turn, provides collateralized 

loans to financial institutions or purchases bonds and loans outright; or (iii) direct lending through 

the Main Street Lending program to smaller companies and nonprofit organizations. Congress 

appropriated US$454 billion to the Treasury to backstop these facilities and to absorb potential 

credit losses. The announcement effect of these programs served to boost liquidity in a range of

credit markets. 

14. The steps taken by the Federal Reserve were well-designed, forceful and instrumental 

in supporting demand and restoring the normal functioning of financial markets. In light of

the significant uncertainties facing policy makers in March, it was appropriate to tackle the 

burgeoning problems in market functioning through multiple points of entry, backing a broad range 

of institutions and asset markets. Deploying large and front-loaded purchases of Treasuries and 

mortgage-backed securities alongside the various credit facilities allowed spreads on investment 

grade corporate bonds to fall by 200 basis points, equity markets to rebound, and both market 

volumes and bid-ask spreads to return to more normal levels. The expansion of swap lines with 

other central banks, and the easing of the terms for accessing these resources, helped to mitigate 

strains in global dollar funding markets. In addition to the positive effects on the U.S. economy, 

these programs had positive spillovers to many other countries, helping to maintain market 

functioning in global credit and dollar funding markets and—in conjunction with the various actions 

taken by other countries—facilitating a broad-based loosening of global financial conditions. 

0

1

2

3

4

5

0

40

80

120

160

Jan 1 Feb 1 Mar 1 Apr 1 May 1 Jun 1

MBS IG Corporate (RHS)

Source: Moody's, S&P

(Percent, spread) (Basis points, OAS)

Credit Market Spreads

0

40

80

120

160

0

20

40

60

80

100

Jan 1 Feb 1 Mar 1 Apr 1 May 1 Jun 1

VIX

LIBOR (RHS)

Source: British Bankers Asssoc., CBOE, Treasury Dept.

(Percent) (Basis points, spread)

Equity Volatility and LIBOR Rates
UNITED STATES

16 INTERNATIONAL MONETARY FUND

Box 4. Federal Reserve 13(3) Facilities

Primary Dealer Credit Facility. Loans to primary dealers for up to 90 days, backed by a wide range of 

margin-adjusted collateral (including Treasury and agency debt, investment grade corporate debt, 

international agency securities, commercial paper, municipal bonds, mortgage and asset-backed securities, 

and equities).

Money Market Mutual Fund Facility. Loans to depository institutions, bank holding companies and

branches of foreign banks for up to 12 months collateralized by assets (including Treasury and agency 

securities, asset-backed commercial paper, unsecured commercial paper, certificates of deposit, short-term 

municipal debt) that are purchased by the borrower from money market funds.

The Primary / Secondary Market Corporate Credit Facility.

1 Primary / secondary market purchases of

corporate bonds, syndicated loans, or corporate bond ETFs for issuers that were investment grade on March 

22. The secondary market facility SMCCF will aim to create a corporate bond portfolio that is based on a 

broad, diversified market index of U.S. corporate bonds. 

Commercial Paper Funding Facility.

1 Secondary market purchases of three-month commercial paper 

(including municipal and issuers with a foreign parent).

The Term Asset-Backed Securities Loan Facility.

1

Loans to holders of highly-rated asset-backed securities 

containing auto or student loans, credit card receivables, equipment loans, leveraged loans, or commercial 

mortgages. 

The Municipal Liquidity Facility.

1 Purchase of notes issued by states and qualifying counties and cities with 

maturities of less than 24 months.

Paycheck Protection Program (PPP) Liquidity Facility. Provision of term financing to depository 

institutions that providing PPP loans. 

Main Street Lending Programs.

1 Purchase of existing or new bank loans, with maturities up to 4 years, to 

firms with up to 10,000 workers or with annual revenues of less than US$2.5 billion. Banks initiating the loans 

will retain a 5 percent share in the loan, and firms participating in the program will be subject to certain 

conditions (e.g., they must make reasonable efforts to retain workers, not use the loans for early repayment 

of other debts, and meet the limits on executive compensation, stock buybacks, and payment of dividends).

A separate facility will provide funding to certain nonprofits.

1 Structured as a special purpose vehicle (SPV) funded by loans from the Federal Reserve and capitalized by Treasury resources.

B. Fiscal Actions

15. Through four rounds of legislation in March and April, Congress moved swiftly to 

provide substantial assistance to households, businesses and state and local governments

(Box 5). Compared to other advanced economies, including in Europe, the U.S. legislated larger 

temporary direct support, in the form of enhanced unemployment benefits and cash transfers, partly 

as a result of its social safety net traditionally being smaller (and so automatic increases in social 

assistance tend to be weaker in the U.S. than in many other advanced economies). 

16. These significant fiscal efforts came at a substantial cost. The federal government 

primary deficit is expected to rise from around 3 percent of GDP in FY2019 to 16 percent of GDP in 

FY2020. This will cause the federal debt to rise steeply, to close to 100 percent of GDP by end-2020. 
UNITED STATES

INTERNATIONAL MONETARY FUND 17

Under current policies, the path for debt-GDP is expected to continue increasing over the mediumterm. State and local government deficits are expected to more than double in size this year, even as

many states are cutting lower-priority spending to adhere to balanced budget requirements. 

17. Despite their high cost, this fiscal package provided essential “life support” for the 

U.S. economy and increased the incentive for individuals to adhere to stay-at-home orders. By 

seeking to preserve employer-employee relationships and prevent corporate bankruptcies, the fiscal 

measures have cushioned the impact of the pandemic on the macroeconomy and lessened the 

lasting economic scars from the shutdown of activity that the pandemic made necessary. These 

measures complemented the important efforts that were taken by the Federal Reserve and helped 

maintain balance in the mix of fiscal and monetary policy responses. The fiscal packages supported

healthcare providers in their response to the pandemic and provided temporary breathing space to 

state and local governments. Although there have been some implementation delays and errors, the 

direct cash payments, expanded unemployment benefits, and food assistance have protected

household income, contained the overall increase in poverty rates, and allowed families to adhere to 

stay-at-home orders without facing significant economic hardship.

4

18. As more is learned about the nature of the pandemic and its economic implications, 

policy interventions will need to pivot toward measures targeted to firms and households 

that are most in need of support and to policies that provide the greatest stimulus to activity 

and job creation. For instance, the business tax provisions in the CARES Act provided important 

liquidity to firms but future measures should focus on incentivizing new investment. Similarly, once 

infection rates are contained, policies should not create undue disincentives for individuals to return 

to work or for capital and labor to be reallocated in a way that best adapts to a post-pandemic 

world.

4 Based on recent U.S. Current Population Survey data, Parolin and others (2020) show that in the absence of the 

CARES Act, poverty rates would have risen to 16.3 percent in 2020. However, based on their simulations, the income 

transfers in the CARES Act have the potential to maintain poverty rates at pre-crisis levels.
UNITED STATES

18 INTERNATIONAL MONETARY FUND

Key Fiscal Measures in Responses to COVID-19

 
UNITED STATES

INTERNATIONAL MONETARY FUND 19

Box 5. Fiscal Response to the Pandemic

Support for households

• Cash payments. US$1,200 per adult (plus US$500 per child) for those with gross annual income of less 

than US$75,000 (US$150,000 for a couple filing jointly), after which the benefit is reduced by 5 percent 

for those earning income in excess of that limit. 

• Enhanced/expanded unemployment benefits. Expanded eligibility for state unemployment insurance 

to include the self-employed and individual contractors. The duration of benefits was extended to 39 

weeks with a supplemental payment of US$600 per week paid until end-July 2020. The supplement 

resulted in 5 out of 6 workers receiving benefits in excess of their previous earnings (for the median 

workers benefits amount to 134 percent of earnings).

• Food assistance. An expansion of child nutrition programs and food stamps.

• Distributions from tax-advantaged retirement funds. Individuals are allowed to withdraw up to 

US$100,000 from retirement funds without penalty. 

• Tax filing deadlines for individuals were delayed from April to July.

Support for businesses

• Assistance to severely distressed sectors. US$29 billion was provided to support airlines (include 

grants and loans) and a further US$17 billion of direct loans or guarantees for businesses critical to 

national security. Companies receiving direct loans or loan guarantees are required to limit executive 

compensation and not undertake share buybacks. In addition, US$454 billion was appropriated to 

backstop the Section 13(3) Federal Reserve facilities described above. This corporate assistance is 

monitored by an independent inspector general and a congressional oversight panel.

• Paycheck protection program. The Small Business Administration would provide loans and guarantees 

to companies with up to 500 employees (including independent contractors and the self-employed) to 

cover payroll costs, mortgage/rent payments, utilities and health benefits. The loans are eligible for 

partial or total forgiveness depending on the extent to which the firm maintains its pre-crisis number of 

employees on payroll.

• Employee retention tax credit. A tax credit, which equals to 50 percent of the qualified wage paid by 

eligible employers through end 2020 with a cap of $5,000 per employee, provides incentives for 

businesses to keep workers on their payroll.

• Delay in tax deadlines. Businesses can delay their quarterly estimated tax payments until after October 

15, 2020 and defer payroll tax payments until the end of the year (then paying them in installments in 

2021-22).

Support to health providers and state and local governments

• Transfers to subnational governments. US$150 billion was provided as transfers to state and local 

governments. 

• Healthcare. US$175 billion was appropriated to hospitals to support their work in treating the sick and 

a range of measures were introduced to address medical supply shortages, fund COVID-10 testing, and 

expand telehealth services.

SDR28 billion for the IMF’s New Arrangement to Borrow
UNITED STATES

20 INTERNATIONAL MONETARY FUND

OUTLOOK AND RISKS TO THE RECOVERY

19. The economy is projected to recover only gradually, and the outlook is subject to 

tremendous uncertainties and sizable risks. Following a rebound in activity in the second half of 

the year, GDP is projected to end 2020 around 61⁄2-7 percent below end-2019 levels, recovering a 

further 4 percent in 2021. GDP is expected to steadily rise in the years ahead but, by 2025, would 

remain 4-5 percent below the level of activity that was expected pre-pandemic. 

20. There is expected to be a large and 

persistent widening of the output gap. Clearly, 

there is tremendous uncertainty about even the 

path of output and that is amplified in trying to 

estimate potential GDP (which is, after all, 

unobservable). However, staff views that COVID-19 

has had an immediate impact on the level of 

potential GDP as full capacity in various sectors has 

diminished relative to the pre-pandemic period 

(due to public health conditions). In staff’s baseline 

it is assumed that the constraints on safe activity in 

a range of in-person services will remain binding

for some time. 

21. The principal risk to this outlook, and the one that is the most difficult to quantify, is 

that a resurgence in the number of COVID-19 cases in the U.S. could lead to a renewed, partial

shutdown of the economy in order to preserve lives, particularly of vulnerable populations. A 

cautious public health approach (by both local 

governments and the population at large) will 

mitigate this risk but the recent increase in infection 

rates is already leading to a slowdown or partial 

reversal of reopening decisions in some states.

Adding to these uncertainties are the prospects for

other policy changes—such as the reopening of 

schools and the resumption of cross-border travel 

and immigration—whose effects are highly 

uncertain and have an important potential to

impact the path of the pandemic and the pace of 

recovery in activity and employment.

18

19

20

21

22

2020 2021 2022 2023 2024 2025

Potential GDP (trillion 2012 dollars

Post-covid Baseline

Pre-covid

Source: IMF staff estimates.

0

2

4

6

8

Mar 1 Apr 1 May 1 Jun 1

Total Covid Cases 

(per thousand population)

United States

United Kingdom

Japan

Italy

France

Germany

Canada

Source: Johns Hopkins. Note: jumps can occur due to 

classification changes. 
UNITED STATES

INTERNATIONAL MONETARY FUND 21

22. Even with a relatively optimistic path for the virus and the eventual availability of 

treatments and a vaccine, there are other 

significant uncertainties surrounding the 

economic propagation of the COVID-19 

shock. Despite important recent

improvements, the dramatic rise in 

unemployment has inevitably resulted in a 

fracturing of many employee-employer 

relations. These will take time to repair. In 

addition, by June, 4.6 million workers had left 

the labor force. The hysteresis literature 

suggests, under the best of circumstances, it 

2019 2020 2021 2022 2023

Longer 

Run

IMF -6.6 3.9 3.3 2.3 1.6

CBO -5.8 4.0 2.9 2.1 1.8

SPF -5.6 3.1 4.1 2.2 2.0

IMF -6.9 5.1 2.8 2.0 1.6

CBO -5.9 4.8 2.2 2.1 1.8

FOMC -6.5 5.0 3.5 ... 1.9

IMF 1.0 -4.1 -1.1 -0.5 -0.4 ...

CBO 1.0 -6.4 -3.4 -3.0 -2.7 ...

IMF 9.7 7.4 5.7 4.6 4.0

CBO 10.5 7.6 6.9 6.3 4.4

SPF (annual avg) 10.8 8.1 6.2 5.1 4.1

FOMC 9.3 6.5 5.5 ... 4.2

IMF 0.7 2.1 2.0 2.0 2.0

CBO 0.4 1.3 1.7 1.8 2.0

SPF 0.8 1.7 1.8 ... ...

FOMC 0.8 1.6 1.7 ... 2.0

IMF 0.8 1.8 1.9 1.9 2.0

CBO 0.6 1.3 1.7 1.8 2.0

SPF 1.3 1.6 1.8 ... ...

FOMC 1.0 1.5 1.7 ... ...

IMF 0.1 0.1 0.1 0.1 1.9

CBO (3m T-Bill) 0.2 0.2 0.2 0.2 2.3

SPF (3m T-Bill) 0.4 0.2 0.6 0.9 ...

FOMC 0.1 0.1 0.1 ... 2.5

Output Gap (eop)

Economic Forecasts (percent)

Projections

Real GDP Growth (annual average)

Real GDP Growth (Q4/Q4)

2.3

2.3

1.4

3.5

Unemployment Rate (eop)

 PCE Inflation (Q4/Q4)

Core PCE Inflation (Q4/Q4)

1.6

Sources: CBO projections are from the Budget and Economic Outlook July 

2020; FOMC projections are from the June 2020 Summary of Economic 

Projections; SPF is the Federal Reserve Bank of Philadelphia's Survey of 

Professional Forecasts, May 2020.

Federal Funds Rate (eop)

2.4

0

1

2

3

4

Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20

Chapter 7 Chapter 11

Commercial Bankruptcy Filings (thousands)

Source: Epiq AACER Court Data
UNITED STATES

22 INTERNATIONAL MONETARY FUND

will take time for many of them to return to active job search or employment. Furthermore, the drop 

in demand for a range of activities, could lead to a wave of corporate bankruptcies as well as 

necessitate a significant reallocation of capital and labor across the economy.5 There are frictions 

associated with such an economic restructuring which will inevitably take a toll on the pace of 

recovery. Finally, pervasive excess capacity is likely to dampen prospects for new investment in many 

sectors.

23. Additional policy efforts or rapid progress on vaccines or therapeutics would have 

important effects in accelerating the pace of recovery. Staff’s outlook does not incorporate any 

future monetary or fiscal policy stimulus beyond that which has already been put in place (while it 

seems likely that another fiscal package will be legislated, it is difficult at this stage to predict the 

size or composition of that stimulus). The forecasts also does not assume a vaccine discovery is 

imminent. Additional policy efforts to stimulate demand or rapid progress on vaccines or 

therapeutics would have important effects in accelerating the pace of recovery. Beyond these policy 

efforts, it is worth emphasizing that the U.S. has proved time and again that it has the flexibility to

adapt to shifts in the economic environment as well as the talent and human capital to innovate in 

new and unexpected ways. The new innovations necessary to achieve a restructuring of the U.S. 

economy could potentially drive a revival in productivity and investment in new industries and (at 

least temporarily) boost potential growth. 

24. The very large amount of slack in the economy increases the risk of an extended 

period of low, or even negative, inflation. Persistently high levels of unemployment are likely to 

put downward pressure on wages and the global excess capacity in tradable goods and 

commodities is likely to present a source of imported disinflation.6 There could be countervailing 

forces that will push up costs (e.g. from a potential need to re-shore production in certain industries 

or adaptations that will be needed to ensure customer safety). However, these pressures are likely to 

manifest as shifts in relative prices but not through a generalized upswing in core or headline 

inflation. If inflation remains low, or even negative, for an extended period, this would mute the 

impact of monetary policy loosening (given the effective lower bound) and could lead businesses 

and consumers to delay their purchases (further weakening demand). A disinflationary path would 

be particularly problematic in the face of the expected increase in public, household, and corporate 

indebtedness that lies ahead (potentially giving rise to balance sheet stress and necessitating debt

write-downs by creditors).

5 Recent legislation may help facilitate faster and less expensive small business bankruptcies. In February 2020, the 

Small Business Reorganization Act (SBRA) entered into force, which introduces a simpler version of Chapter 11 for 

small and medium enterprises. The CARES Act raises the applicable thresholds for the SBRA, so that it now covers a 

much larger number of enterprises (firms with debt of up to US$7.5 million). There are ongoing discussions in 

Congress regarding a budget increase for the bankruptcy courts, including an increase in the number of judges and a 

recall of retired judges.

6 Although signs point to the demand downturn being stronger than supply contractions, there are also concerns 

that inflation is no longer properly measured due to rapid changes in the consumption bundle, disappearing goods, 

and sharp changes in the quality of goods (Cavallo 2020).
UNITED STATES

INTERNATIONAL MONETARY FUND 23

25. There are already urgent warning signs that the depth of the economic contraction 

and the sectoral distribution of economic losses will lead to a systemic increase in poverty,

adding to longer-term risks to growth. Poverty rates were already high (e.g. relative to other 

advanced economies) even prior to the pandemic. There is also an important racial dimension to 

poverty in the U.S. with African Americans and Hispanics more likely than White households to be in 

poverty, unemployed, and without health insurance. The loss of income in the second quarter has 

been particularly incident on lower income workers although, over the near-term, the supplemental 

unemployment insurance and economic impact payments will help mitigate the effects of the 

pandemic on lower income households. However, over the next year or two, the poverty rate is likely 

to spike above levels reached during the global financial crisis (a period when the official poverty

rate rose above 15 percent, levels last seen in the mid-1960s). Even under staff’s baseline projection, 

the median household’s disposable income could take several years to recover to its 2019 levels7. All 

in all, the risk ahead is that a large share of the U.S. population will have to contend with an 

important deterioration of living standards and significant economic hardship for several years to 

come. Such elevated levels of poverty can, in turn, further weaken demand and exacerbate longerterm headwinds to growth (e.g. by preventing the accumulation of human capital, eroding labor 

force participation, or contributing to social unrest. 

26. The significant increase in debt levels gives rise to important vulnerabilities. The fiscal 

response to the pandemic that has already been put in place is expected to lead general 

government debt to rise to 160 percent of GDP by 2030. It will go even higher if—as seems likely—

further fiscal stimulus is put in place. The job losses will lead to increased household indebtedness 

and balance sheet strains that are likely to manifest themselves (e.g. in the form of an increase in 

foreclosures and personal bankruptcies). Corporate debt has increased above the already-high prepandemic levels as firms have drawn on credit lines and (particularly for investment grade firms) 

issued new debt to build up cash buffers. Low, or possibly negative, inflation, the need for a 

significant resource reallocation across sectors, and a slow return of corporate earnings to prepandemic levels will combine to cause corporate failures to rise (Box 6). Finally, equity and bond 

market valuations appear stretched, leaving the economy vulnerable to new bouts of market 

volatility and a potential future tightening of financial conditions. 

27. Finally, it is worth noting the specific risks facing state and local governments. The bulk 

of public health care interventions that have been required to respond to the pandemic has rested 

on state and local government budgets. At the same time, local education authorities have had to 

handle shifting classes to online formats and ensuring students had access to adequate technology 

to continue learning. Furthermore, social assistance and unemployment insurance spending 

predominantly takes place at the state and local level. Finally, states are reliant on sales tax revenues 

which have plummeted. As a consequence, state and local finances have shifted from close to 

primary balance to an expected deficit of 2-3 percent of GDP in 2020. However, aside from Vermont, 

state governments face balanced budget requirements which is already leading some states to pro7 As an indication, following the 2008-9 recession, real GDP fell peak-to-trough by 4 percent and returned to prerecession levels within 3 years. Despite this, real median household income fell by over 8 percent and took nine years 

to recover.
UNITED STATES

24 INTERNATIONAL MONETARY FUND

cyclically cut spending in certain areas. A contraction in spending by state and local governments 

presents downside risks for two broad reasons. First, from a macroeconomic perspective, a fiscal 

tightening by subnational governments in 2020-21 would constitute an important headwind to the 

efforts by federal policymakers to boost activity. Second, social assistance, health and education 

spending make up around two-thirds of state and local outlays. This will likely mean that spending 

cuts by state and local governments will be particularly incident on low income households and the 

unemployed, at a time when they need more support (not less). 

28. Authorities’ views. The authorities recognized the extraordinary degree of uncertainty 

surrounding any forecast of the outlook for the U.S. economy. However, they were confident that 

the third and fourth quarter would record historically high growth and significant gains in 

employment. Officials believed that, notwithstanding recent increases in COVID-19 cases, the public 

health efforts by federal, state and local governments over recent months had left the U.S. economy 

well-placed to pursue a phased reopening. The expected economic revival would be strengthened 

by the range of policy efforts that had been introduced to provide resources to households, firms 

and state and local governments. They noted that the design of the support packages already put in 

place had been progressive, providing more resources to lower income groups. This had allowed 

households to maintain a solid liquidity position which will support demand in the coming months. 

The authorities agreed that the principal risk ahead arises from a resurgence in COVID-19 infections 

but that risk was mitigated by a significant expansion in testing and the ongoing development of 

therapeutics and vaccines. They saw little risk that the economy would be shut down again,

especially given the improvements made in public health preparedness. They also noted that the 

lack of balance sheet imbalances prior to the crisis would allow for a rapid recovery in activity that 

was in contrast to the experience following the global financial crisis. While recognizing the increase 

K to 12 education, 

18

Higher education, 

8

Public welfare, 19

Hospitals and 

health, 8

Employee 

retirement, 8

Unemployment 

compensation, 1

0 10 20 30

Liquor store expenditure

Interest on general debt

Other general expenditure

Governmental administration

Environment and housing

Transportation

Utility expenditure

Public safety

Insurance trust expenditure

Social serv. & income main.

Education services

State and Local Government Spending by Type 

(Percent of total expenditure) 

Source: U.S. Census Bureau; latest available data (2017).

Note: chart does not show intergovernment expenditure (0.1%).
UNITED STATES

INTERNATIONAL MONETARY FUND 25

in public debt as a vulnerability, the authorities were confident that the U.S. could support such debt 

levels and this was clearly being reflected in market pricing of sovereign risk.

Box 6. Liquidity and Solvency Prospects for the Corporate Sector 1

Corporate stress tests were undertaken to assess the U.S. corporates’ liquidity and solvency 

challenges going forward. The data sample includes 750 U.S. firms, that together account for two-thirds 

of total corporate borrowing. Staff’s baseline forecasts were mapped into sectoral revenue losses across 18 

sectors. Based on the terms of the companies’ outstanding debts and assumptions on the evolution of 

costs, the corporates’ liquidity (net cash) and solvency (net equity) positions were projected. 

Corporates are expected to face important liquidity 

challenges from the collapse in revenues as a result 

of the pandemic. Among those firms that were 

investment-grade as of March 22, 2020, the largest 

liquidity needs arise from the operating losses and debt 

rollover needs of the energy sector. In total, the sector’s 

outstanding debt is US$580 billion (or 10 percent of 

investment grade loans and bonds) but they account 

for almost 70 percent of corporate liquidity needs 

through end-2020. If these energy firms are unable to 

issue new debt, over 80 percent of the outstanding debt 

stock in the sector would hit a binding liquidity 

constraint by year-end and be unable to meet their 

obligations. The estimated liquidity needs in other sectors amounts to between US$290-619 billion by 

end-2020 (depending on the extent to which these firms maintained their pre-crisis investment levels). 

A significant proportion of non-investment grade

firms could face solvency risks, particularly for those 

sectors hit hardest by the crisis. Around 15 percent of 

the debt of non-investment grade, non-energy firms (or 

US$485 billion in total borrowing) are predicted to have

negative equity by end-2020. These firms are mostly 

concentrated in entertainment, technology, and 

transportation industries. These firms should 

presumably end up in some form of bankruptcy 

proceedings. The debt issuance needs in 2020 by the 

remaining solvent, high-yield firms are relatively modest 

(between US$90-140 billion depending on the level of

investment spending these firms undertake).

1 Based on C. Caceres, D. Cerdeiro, S. Tambunlertchai, and D. Pan, “U.S. Corporate Stress Tests”, IMF Working Paper 

(forthcoming).

-500

-400

-300

-200

-100

0

100

200

2020M42020M52020M62020M72020M82020M9

2020M102020M112020M12

2021M12021M22021M32021M42021M52021M6

2021M72021M82021M9

2021M102021M112021M12

Aggregate Cash Need of Firms with Negative Cash 

Balances, IG (excluding capex spending)

(Billion US$)

Consumer Services

Energy

Media and Entertainment

Transportation

Other Industries -500

-400

-300

-200

-100

0

100

200

2020M42020M52020M62020M72020M82020M9

2020M10

2020M112020M12

2021M12021M2

2021M32021M42021M52021M62021M72021M82021M9

2021M102021M112021M12

Aggregate Cash Need of Firms with Negative Cash 

Balances, HY (excluding capex spending)

(Billion US$)

Consumer Services

Energy

Media and Entertainment

Transportation

Other Industries
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26 INTERNATIONAL MONETARY FUND

THE FUTURE DIRECTION OF FISCAL POLICY

29. The priority ahead should be to design (and build a political consensus around) a 

package of fiscal policies to accelerate the post COVID-19 recovery. Policymakers should 

continue to provide funding for the immediate health response. In addition, given the severity of the 

crisis and the relatively small size of automatic stabilizers in the U.S., a new fiscal package should be 

legislated in the next few months that includes substantive, discretionary policy actions. These would 

need to be sustained over the coming years, until the recovery is well-established and the output 

gap has been significantly narrowed. Such a stimulus package should be designed to simultaneously 

address the deep-rooted social and economic challenges that continue to beset the U.S., address 

environmental concerns, de-escalate trade conflicts, and meet the challenges and opportunities 

presented by a more accelerated shift to digitalization. 

30. Given the depth of the contraction and the downside risks articulated above, the fiscal 

package would need to be large. A model-based analysis suggests that, under staff’s current 

baseline, the appropriate additional fiscal package could be in the order of 101⁄2 percent of GDP 

over the next three years (Box 7). If, however, downside risks to activity materialize, the needed fiscal 

actions would have to be proportionally larger. For example, a 1 percent of GDP increase in the end2020 output gap would add about 11⁄2 percent of GDP to the size of the desired fiscal package over 

the next three years. This emphasizes the need for policymakers to remain agile and respond 

proactively to the evolution of the economy and the trajectory of the pandemic, quickly adjusting 

the size and composition of the fiscal response as both economic and public health conditions

change. It is also worth underlining that an insufficiently ambitious fiscal response would risk leaving 

the U.S. with an unbalanced policy mix that puts too much pressure on the monetary authorities to 

respond, without commensurate help from the fiscal side.

A. Tax Policies

31. The expected increase in poverty and income polarization makes it appropriate to 

increase personal income tax credits and target them toward the most vulnerable. The main 

tools to achieve this would be to increase the generosity of, and eligibility for, the Earned Income 

Tax Credit (especially for childless workers) and to raise the child tax credit (making it fully 

refundable up to a specific income level). Targeted credits could also be put in place for job training 

or relocation expenses to facilitate the return of displaced workers to the labor force. Given the high 

marginal propensity to consume of lower-income households, such credits would have relatively 

large multipliers and provide a significant boost to consumer spending. This support could be frontloaded and made more tangible for recipients by making advanced payments of these credits

(although this would need to be administered carefully to avoid fraud or a misallocation of 

resources).

32. To ease the cashflow needs of companies, simplify the tax system, and provide 

incentives to invest, the business tax should be fully converted to a cash flow tax (whereby all 

new capital investments would be immediately expensed). The 2017 tax reform allowed for 
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temporary expensing of equipment investment which complemented the existing tax incentives for 

R&D investment (resulting in around 80 percent of total investment being expensed). These

provisions should be made permanent and expanded to ensure that the cost of all new investments 

could be immediately expensed. This would allow the deductibility of interest costs associated with

the financing of such investments to be gradually phased out (which would have the benefit of 

lessening the debt bias currently built into the tax system). Full expensing would target tax relief to 

new investments (rather than the existing capital stock) and would provide greater tax certainty (i.e., 

avoiding cliff effects associated with the scheduled expiration of existing expensing provisions)8. The 

tax benefit for new investments could either be made creditable against other tax obligations or 

refundable in order to increase the liquidity benefits to firms (particularly for those with limited 

income or taxable losses). Gradually phasing-out interest deductions would provide a temporary net 

subsidy to the returns on new investments which could help accelerate some investment decisions. 

Considerations to “border adjust” this cashflow tax (i.e., to move the business tax to a destinationbased cashflow tax) should take into account issues related to the compatibility of such a tax regime 

with WTO obligations as well as other potential outward spillover effects (e.g. due to ensuing 

exchange rate adjustments and implications for the corporate tax systems of other jurisdictions).9

B. Tackling Poverty and Supporting Displaced Workers

33. In the coming months, poverty looks set to rise. The tax credits described above will help 

but should be complemented by a permanent expansion in the eligibility for, and size of, social 

assistance. Such policies will also mitigate the racial inequities in economic outcomes (although it 

should be recognized as representing only one step in addressing these complex socioeconomic 

issues). Measures should focus on increased funding for the Supplemental Nutrition Assistance 

Program and a temporarily suspension of work requirements that have been attached to this 

program. Consideration could be given to increasing direct cash aid to poor families (e.g. through 

the Temporary Assistance for Needy Families program) and temporarily expanding the Section 8 

housing voucher program (to ensure poor families are able to cover their rent). 

34. The COVID-19 outbreak has brought to the forefront existing weaknesses in the 

decentralized and fragmented U.S. health system. The U.S. system predominantly delivers health 

coverage through employer-provided insurance, overall costs are high, and 25.6 million Americans 

lack health coverage. The pandemic has provided a dramatic new backdrop for the longstanding 

public policy debate over how, or whether, to remake the current structure of the U.S. health system. 

8

It is worth noting that the evidence over the past few years has, however, not pointed to particularly large supplyside effects arising from either the lower statutory rate or the expensing provisions included in the Tax Cuts and Jobs 

Act (see E. Kopp, D. Leigh, S. Mursula, and S. Tambunlertchai, “U.S. Investment since the Tax Cuts and Jobs Act of 

2017,” IMF Working Paper 19/120, 2019). However, the relatively modest impact on long-term investment decisions 

could, in part, be a result of concerns over the scheduled expiration, or potential future reversal, of some of the 

provisions of the Act.

9 See A. Auerbach, M. Devereux, M. Keen and J. Vella, “Destination-Based Cash Flow Taxation”, Oxford Legal Studies 

Research Paper No. 14, 2017.
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28 INTERNATIONAL MONETARY FUND

The most immediate concern in the months ahead is that families may lose their employer-provided 

health insurance in the event they become unemployed, adding to the high number of alreadyuninsured Americans. Efforts to preserve employer-employee relations will certainly be important in 

mitigating this risk. Nevertheless, given the nature of the current health crisis and the expected 

persistence of relatively high levels of unemployment, it will be crucial to ensure that health 

programs for low income families (such as Medicaid and the Child Health Insurance Program) are 

able to meet the potential increased demand from the newly unemployed. As in previous recessions, 

consideration could be given to temporarily increasing the federal share of spending on Medicaid.

10

Further incentives could be introduced to encourage states to expand Medicaid and/or further raise 

the income limits for Medicaid eligibility.

11 States could also launch campaigns to increase 

awareness of available health insurance options (to widen coverage among low income and 

vulnerable groups). 

10 The Family First Coronavirus Response Act increased the Federal Medical Assistance Percentage (FMAP) by 6.2 

percentage points during the COVID19 emergency, although this is below the 12 percent increase put in place during 

the Global Financial Crisis. 

11 The Medicaid expansion was intended to be national but the June 2012 Supreme Court ruling essentially made it 

optional for states. Medicaid eligibility for adults in states that did not expand their programs is quite limited, with a 

median income limit at just 41 percent of poverty. If the 14 states that have not yet adopted the Medicaid expansion 

do so, an estimated 2.8 million uninsured adults would have access to Medicaid coverage in 2021 (see Garfield and 

others, 2020).
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Box 7. Potential Size of the Needed Fiscal Stimulus—A Buffer-Stock Model Approach1

A “Buffer-Stock” model quantifies the additional fiscal stimulus needed to bring the U.S. economy 

close to full employment while being cognizant of debt sustainability concerns.2In this stochastic

structural model, fiscal policy is constrained by implementation lags and fiscal expansion erodes buffers

(leading to higher borrowing costs). However, up-front stimulus has the benefit of lessening hysteresis 

effects (i.e., decline in labor force participation or the depreciation of human and physical capital).

The model calibration is tailored to the U.S. economy. The fiscal multiplier is set between 0.6 and 1 when 

the economy is in equilibrium (see Ramey, 2019), but is state contingent (increasing to above 1 at the 

bottom of the cycle). The primary balance deteriorates by 0.35 percent of GDP for each 1 percent fall in GDP. 

Interest rates increase by 0.5 basis points for each 1 percent increase in the debt-to-GDP ratio. The debt 

level at which the risk of a loss of market access prompts the government to pursue consolidation is set at 

200 percent of GDP. Finally, continued health concerns that prevent certain businesses from operating at full 

capacity in 2021 are embedded in the potential output forecast. 

The analysis would argue for a stimulus of about 101⁄2 percent of GDP through 2023 to restore the 

economy quickly to full employment. Under current policies, the structural primary general government 

balance would tighten substantially in the second half of 2020, as most of the measures introduced in the 

CARES Act phase out. This would lead an output gap of about 5 percent in 2020 and 1.7 percent in 2021. 

Given historically low borrowing costs and a strong demand for U.S. Treasuries, bringing activity back to 

potential as quickly as possible becomes a driving consideration in calibrating fiscal policy. As a result, the 

model recommends a fiscal path that brings the economy to full employment by 2022. Under this fiscal

path, general government debt would rise to about 155 percent of GDP by 2023. 

 

The size of the appropriate stimulus is sensitive to the model calibration. If multipliers or the interest 

rate elasticity to debt-GDP were larger, less stimulus would be needed. By contrast, if the output gap starts

1 percent of GDP larger than in the baseline forecast, the recommended cumulative stimulus over three 

years would be 1.5 percent of GDP higher. Moreover, in the event of a vaccine for COVID-19, the economy 

would be able to quickly operate at higher levels of capacity utilization and the optimal stimulus would be 

significantly larger. 

1 Prepared by Jean-Marc Fournier (FAD) and Li Lin.

2 See also Fournier (2019) and Fournier and Lieberknecht (2020).
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30 INTERNATIONAL MONETARY FUND

35. Over a longer horizon, there is a need to more systematically upgrade the federal and 

state social safety net. The multitude of federal, state and local programs to aid the poor could be 

simplified based on a careful evaluation of which programs provide the best cost-benefit trade-off. 

The redesign of the social safety net should eliminate “cliffs” in the phase out of social benefits (to 

avoid very high marginal tax rates on low income workers as their household income rises).

36. There is scope to increase poor families’ access to quality education. To improve 

educational outcomes and move toward greater equality of opportunity there is a need to better 

prioritize spending on early childhood education, universal pre-K, and support for science, 

technology, engineering and mathematics programs. There is also an urgent need to redesign the 

funding model for public schools to reduce funding differentials across districts and to provide more 

resources to schools with a higher concentration of poor students. The existing local funding model 

serves to perpetuate social and racial inequities, providing schools in poor neighborhoods with

significantly less resources than those in wealthier neighborhoods (despite having to contend with 

greater challenges in educating children from poorer households). Given the high costs of tertiary 

education, an expansion of apprenticeship and vocational programs could offer attractive, wellpaying, non-college career path to workers of all ages. Finally, there is a need to invest more in 

preparing students for college—particularly first generation students and those from low income 

households—and, once those students are enrolled, to fund programs that foster retention 

(including by supporting students in managing the financial dimensions of their college investment).

37. Given the extraordinary nature of the current shock to activity and the changing 

contours of the labor market, the recently legislated changes to unemployment insurance 

eligibility should be made permanent. In the CARES Act, the self-employed, those seeking parttime employment, and independent contractors were made eligible for state-level unemployment 

insurance programs. This recognizes the changing nature of employee-employer relationships (e.g. 

with increasing number of “gig” workers) and should be made a permanent feature of the system. 

The economic impact payment and supplemental unemployment benefits should be phased out. 

Support to poorer households should, instead, be provided through an upgraded, means-tested

social safety net. Given that such changes to social assistance will take time to put in place,

consideration could be given to legislating a temporary unemployment insurance supplement. Such 

a supplement should be time-bound, more targeted to poorer households, and with lower 

replacement rates (so as to incentivize those that are able to do so to return to work). Given the 

likely needed reallocation of labor to higher-skilled, IT-intensive jobs, income support for the 

unemployed could usefully be complemented by new schemes to retrain workers and facilitate their 

return to the labor force (including through assistance with geographic mobility). Finally, the 

Families First Coronavirus Response Act requires employers with less than 500 employees to provide 

paid sick leave and paid family leave to all workers that face specific challenges related to COVID-19 

(e.g. because of a need to self-quarantine or to care for a child). Consideration should be given to 

expanding this provision to require all employers to provide paid family leave, with terms that are 

similar to the provisions legislated in 2019 for federal workers. 
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C. Public Health

38. The COVID-19 crisis has highlighted the need for further funding of both domestic and 

international public health efforts to increase readiness and provide protection against future 

pandemics. In the U.S., as elsewhere, healthcare capacity has proven inadequate during the crisis

and there has been significant variability across states and localities in the public health response to 

the pandemic (and the results of those responses). Guaranteeing adequate health supplies globally 

and working with other countries to develop a strategy for production, purchase, and distribution of 

therapeutics and vaccines will be essential. To improve future responses to pandemics, one option 

would be for the U.S. (preferably as part of a multilateral effort) to establish a “standing army” for 

public health. This would encompass significant idle capacity in testing and medical supplies as well 

as a rapid-response unit that could be deployed for testing, tracking and treatment of viruses. 

Building such a capability would be a multi-year endeavor and require permanent and stable 

funding that is potentially outside the usual, annual discretionary appropriations process. In 

addition, as discussed above, greater efforts are will be needed to ensure that the whole population 

has access to quality and affordable healthcare (e.g. by expanding access to Medicaid to a broader 

set of lower income households).

D. Support for State and Local Governments

39. To mitigate the risk, discussed earlier, that state and local budget balance rules trigger 

a procyclical fiscal consolidation, a large increase in transfers to states should be appropriated

(Box 8). Following the 2008 financial crisis, despite the 5.7 percent of GDP fiscal package put in place 

by the federal government, a significant share of the demand impulse was offset by state and local 

governments having to pro-cyclically contract spending and increase taxes (to comply with their 

own balanced budget rules). A significant increase in federal transfers to states would, therefore, be 

indispensable in helping to avoid subnational governments partially undoing efforts at the federal 

level to provide demand support. Such transfers would also help avoid cuts to social assistance, 

healthcare, and education that are likely to need greater funding as the economy recovers from 

COVID-19. Over time, such discretionary transfers could be complemented with, or replaced by, a 

sharing of federal VAT revenues with the states (see below). 

E. Infrastructure

40. The U.S. needs significant infrastructure investment to bring the quality of the capital 

stock into line with other advanced economies. To upgrade the scope and quality of U.S. 

infrastructure, the American Society of Civil Engineers recommends a permanent increase in general 

government investment of around US$2 trillion (about 10 percent of GDP). Around one-half of this 

amount would be for surface transportation needs. In addition, there is a need for additional “green” 

investments of around 0.2 percent of GDP per year (Box 9). Once the reopening of states is more 

advanced, these needs could initially be met by an acceleration of projects that are already in the 

pipeline as well as undertaking previously-identified maintenance and repair needs. In subsequent 

years, there would be a need to carefully prioritize new projects. Such investments could be 
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32 INTERNATIONAL MONETARY FUND

undertaken through discretionary programs—such as the Better Utilizing Investments to Leverage 

Development scheme—which would avoid automatic apportionment of funds and allow for a more 

competitive process in allocating federal resources. The direct infrastructure spending would likely 

have large demand effects and energy efficient investments would help speed up the reduction in 

carbon emissions. Since much of this investment would take place at the state and local level, 

federal support would mainly serve to co-finance infrastructure priorities identified by subnational 

governments.

F. Boosting Consumption

41. When the pandemic fades and localities can safely reopen, consideration could be 

given to offering temporary vouchers to incentivize consumption. Such vouchers could be 

targeted at sectors that are most affected by the crisis (e.g. airlines, travel, or restaurants) or at 

energy-efficient goods. They can help bring forward consumption plans and provide a front-loaded, 

temporary demand boost when it is most needed. A gradual phase-out would avoid creating an “air 

pocket” in consumption as vouchers expire. Alternatively, consideration could be given to offer 

federal incentives to states to encourage them to temporarily reduce their sales tax on certain goods 

which would also boost consumption (although that approach would lead to more uneven effects 

across states since sales tax rates vary and five states have no sales tax at all).

G. Transparency and Accountability

42. To maintain transparency and build public support, federal and state governments 

should establish platforms to provide clear and timely information on the use of public 

monies. The CARES Act creates three new oversight bodies: (i) the Pandemic Response 

Accountability Committee, comprised of an Inspector General’s panel, to conduct oversight of the 

COVID-19-related relief funds; (ii) a Special Inspector General for Pandemic Recovery, within the 

Treasury Department with responsibility for monitoring the Treasury’s US$500 billion fund for 

targeted loans to businesses; and, (iii) a Congressional Oversight Commission. These new bodies 

should be fully operationalized and have the tools, access to information, and resources to fulfil their 

mandates and to coordinate with other oversight institutions. It is particularly important at the 

current juncture—given the size of the federal taxpayer-funded resources being deployed—that 

oversight bodies actively investigate potential fraud, waste or abuse and provide ongoing analysis

and monitoring of COVID programs (both to undertake ex-post assessments of program 

effectiveness and help with the design of subsequent fiscal measures). In addition, there should be 

transparency about the distribution of relief funds and loans (including publishing names and 

beneficial ownership information of recipients and using open public procurement processes). Such 

provisions would complement the important analysis and accountability function that is already 

being undertaken by the Congressional Budget Office and Government Accountability Office. 
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H. Medium-term Measures to Reverse the Increase in Public Debt

43. The historic size of the fiscal packages, coupled with a lower level of nominal GDP, will 

cause a sizable jump in the U.S. debt-to-GDP ratio. Low interest rates will provide some 

breathing space but the structural primary balance will, over time, need to be brought to a modest 

surplus in order to stabilize the debt path, which was already on an unsustainable upward trajectory 

even prior to the pandemic (Appendix III). This adjustment will partly occur naturally as emergency 

programs expire. However, difficult political decisions will be needed to phase-in policies—once the 

economy is on a much firmer footing—that raise revenues and reduce spending (many of which 

Fund staff have long argued for). These could include:

• A federal value-added tax. The United States is the only advanced economy without a VAT and 

consumption tax revenues (in the form of sales taxes collected at the state and local level) are 

low (at around 2 percent of GDP, compared with an OECD average of 7 percent of GDP). The 

VAT should have a single federal rate with minimal exemptions and consideration could be 

given to sharing the revenues with state and local governments). A 5 percent VAT would provide 

around 1.5 percent of GDP in new federal revenues. Given the VAT’s regressive effects it will be 

doubly important to ensure that, before a federal VAT is introduced, there is an effective safety 

net for the poor that is already in place. In any case, the VAT should be introduced only after the 

recovery is firmly established.

• Higher fuel taxes. The currently low oil price provides an opportunity to significantly increase 

federal taxes on gasoline and diesel fuel. In principle, this could be done at a relatively early 

stage and loosely tied to the increased infrastructure outlays. However, the automatic 

earmarking to states through the Highway Trust Fund should be avoided in order to allow state 

and federal government to better-prioritize projects. Each 35 cents per gallon in tax would add 

about 0.2 percent of GDP to federal revenues. The increase in fuel taxes should be closely 

coordinated with the calibration of the carbon tax (with fuel taxes used to price the externalities

specifically associated with auto use—such as congestion and accidents—and the carbon tax 

aimed at the broader environmental externalities of carbon emissions). 
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34 INTERNATIONAL MONETARY FUND

Box 8. The Impact of COVID-19 on State Budgets 

The pandemic is expected to trigger sharp declines in state revenues. Personal income and sales taxes 

have been hard hit from job losses and plunge in retail sales. Based on updated budget projections from 41

states, revenues are likely to be 8 and 13 percent lower in 2020 and 2021, respectively.

The size of downward revisions varies across states. For 

FY2021, budget estimates of the potential decline range 

from about 3 percent for Utah or Arkansas to about 25 

percent for Hawaii and New Mexico. States with stricter 

lockdown measures and where oil and gas revenues 

represent an important revenue source will face the largest 

revenue losses.

State savings funds are well below the projected 

revenue losses. The sum of end-year balances and rainy 

day funds was about US$113bn at end-2019. For most 

states, their savings funds are well below the downward 

revisions in revenues for FY2020 and FY2021 and most 

states have rules that delay or limit the amount of funds 

that can be withdrawn. 

States are also facing mounting health spending. The 

CARES Act appropriated US$45bn Federal Emergency 

Management Agency funding to protect public health and 

safety, and a US$150bn Coronavirus Relief Fund to offset 

expenses directly related to the pandemic. However, 

increased enrollment in Medicaid are likely to add to state 

spending obligations (even though the Family First 

Coronavirus Response Act temporarily increased the 

federal sharing of Medicaid cost by 6.2 percentage 

points). 

States are starting to make significant cuts to 

spending to meet balanced budget requirements. New 

York State will cut aid to local governments by US$8bn while Georgia and Washington plan a reduction of 

about 15 percent in agency budgets in FY2021. School districts are reliant on the Education Stabilization 

Fund (of US$31 bn) that was appropriated by the CARES Act but it is unclear if this will be sufficient to 

protect education budgets. Some states have already announced revenue increases (e.g. California will raise 

business taxes) or will borrow from special revenue funds (e.g. Illinois and California). 

State-level revenue shortfalls and savings
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Box 9. A Historic Opportunity to Transition to a Lower-Carbon Economy

The need for sizable fiscal stimulus comes at a time when there is also an urgent need to address climate 

mitigation and adaption. This confluence of events provides a historic opportunity to adopt fiscal policies that 

will facilitate a shift toward more environmentally-sustainable economic growth model. A combination of fiscal 

measures could be introduced at the federal level including:

Promoting greener car use and transportation. Lower emission vehicles could be incentivized by taxes 

and subsidies on car ownership that are linked to emissions or fuel efficiency (replacing the existing fuel 

economy requirements placed on car manufacturers). In addition, federal outlays could be used to subsidize 

the construction of a more integrated nationwide network of charging stations for electric vehicles (it is 

estimated that US$2.2 billion in charging infrastructure could be needed cumulatively by 2025)1.

Better pricing of the various externalities associated with auto use. Federal resources could incentivize 

the adoption of smart technologies on U.S. roads so as to tax car owners based on miles driven (with 

variable charges for congestion and peak-period road usage as well as incentives for high occupancy 

vehicles). This could initially supplement and eventually replace reliance on gas taxes. Such technologies 

could also allow auto insurance to be based on miles driven (scaled to the driver’s risk profile). Converting a 

larger part of the fixed costs of owning a car into a variable cost that is based on distance driven would help 

internalize the costs of congestion, accidents, carbon emissions and air pollution. 

Incentivizing lower-emission means of power generation. Fees could be imposed on power generators 

that have high rates of emissions and subsidies could be provided to greener means of power generation. 

This offers a more market-based approach to incentivize cleaner power than through a regulatory approach. 

Investing in buildings’ energy efficiency. This could include direct subsidies or tax credits to improve the 

energy efficiency of buildings through retrofits (possibly with higher subsidies provided to lower income 

families) as well as direct spending to increase the energy efficiency of public buildings. 

Fiscal incentives to promote forest sequestration. A nationwide tax-subsidy scheme could create 

incentives for landowners to store carbon (potentially monitoring such efforts through satellite imagery). 

Similar incentives could be provided to other objectives such as preserving or increasing biodiversity. 

Increasing the share of surface transportation spending on public transportation. The allocation of 

federal resources for infrastructure could put a greater premium on maintaining and improving public 

transportation infrastructure (rather than building new road capacity). This could include investments in 

metro and light rail systems in urban areas, high speed intercity rail along highly-traveled routes, expanding 

electric bus fleets and bus rapid transit systems. Deferred maintenance needs alone are estimated at US$90

billion while covid-19 has created significant additional funding gaps in many public transport systems2.

Investing in climate-resilient infrastructure. The priorities include building and updating infrastructures to

withstand severe natural hazards, strengthening climate change risk assessments, and providing incentives 

for mitigation3. Additional funds could be made available to support state and local governments’ mitigation 

efforts, building on the 2018 Disaster Recovery Reform Act that provided funding to FEMA’s National Public 

Infrastructure Pre-Disaster Fund. 

1 M. Nicholas, “Estimating Electric Vehicle Charging Infrastructure Costs Across Major U.S. Metropolitan Areas” International 

Committee on Clean Energy, 2019.

2

The American Public Transportation Association, “Public Transportation Infrastructure: Critically Needed Investments”, May 

2019 and “The Impact of the COVID-19 Pandemic on Public Transit Funding Needs in the U.S.”, May 2020.

3 Homeland Security, “National Mitigation Investment Strategy”, August 2019.
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36 INTERNATIONAL MONETARY FUND

• Introducing a carbon tax. A carbon tax that rises steadily to US$75 per ton by 2030 would 

generate revenues of around 1 percent of GDP12. Such a tax would increase electricity prices by 

60 percent, raise gasoline prices by 20 percent, and more than double the price of natural gas. 

The tax would reduce carbon emissions by around 27 percent and, over the next decade, would 

prevent 65,000 premature deaths from local air pollution. The tax could be implemented 

relatively easily by integrating carbon charges into the existing gas tax and applying similar 

charges to coal, natural gas, and other oil products. There would need to be integrated support 

programs for poor households and some sectors that are most affected by the higher energy 

prices.

• An increase in corporate income tax rates. In 2017 the U.S. reduced its business tax rate to 21 

percent (in line with the OECD average). However, the revenue needs across a range of countries 

perhaps now creates the scope to advance discussions on Pillar 2 of the BEPS Initiative

(imposing a minimum tax on the global income of multinational corporations) and to undertake

a coordinated increase in the corporate rate.13 The impact on growth of a higher marginal 

corporate tax rate could be greatly mitigated by moving to a cashflow tax (as is proposed 

above).

• Entitlement reforms. The authorities will need to counter the pressures on the finances of the 

social security trust fund through accelerating the planned increase in the retirement age, 

increasing the progressivity of benefits, raising the maximum taxable earnings for social security 

contributions, and indexing benefits and contributions to chained CPI. The increase in the 

retirement age should be accompanied by an increase in the age of Medicare eligibility (but with 

provisions within Medicaid to provide coverage to lower income households). Such measures 

could reduce the fiscal deficit by over 4 percent of GDP over the medium term. Containing rising 

healthcare costs will also be important. This could be achieved through greater cost sharing with 

beneficiaries and drug manufacturers, efficiency innovations (e.g. electronic health care records, 

telehealth services), and incentives to increase efficiency and price transparency by healthcare 

providers. There is also scope to apply antitrust solutions to cases where market concentration 

of health providers or insurers has been rising rapidly.

44. Authorities’ views. The authorities recognized that the U.S. would have to put in place 

further fiscal stimulus to accelerate the recovery. There was support for providing more help to small 

businesses, to incentivize investment, encourage companies to rehire, and to facilitate workers’ 

return to work (including potentially through a re-employment bonus). They argued that 

12 In the 2015 Paris Agreement, the US pledged to reduce greenhouse gases by 26-28 percent below 2005 levels by 

2025 (although the US is now set to withdraw from the Paris Agreement in November). To be consistent with 

temperature stabilization goals, measures equivalent to a global carbon tax of at least $75 per ton are needed by 

2030. While more than 60 carbon tax and emission trading schemes have been implemented to date, the global 

average carbon price is still very low at around US$2 per ton.

13 The U.S. recently suggested a pause in the G20/OECD-led process to reform the international corporate tax system 

(given the need to focus on the pandemic). This makes it unlikely that consensus on fundamental reform of the 

international tax architecture can be achieved by end 2020 and may result in countries implementing unilateral 

measures such as digital services taxes.
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maintaining healthcare coverage would be best-achieved by ensuring that individuals were able to 

preserve employer-employee relationships. The authorities emphasized that the precise contours of 

such policies would, however, have to be designed by the Congress, in consultation with the 

administration. They underlined the significant fiscal space that the U.S. continues to have, even 

after the historically unprecedented tax and spending decisions taken over the past few months, and 

that policy support could be sustained for several years, if needed. They were concerned that 

assistance to state and local governments should not end up providing a bail-out to states that had 

pursued poor policies in the past, but emphasized that any resulting contraction in subnational fiscal 

demand could be offset by further stimulus in other sectors of the economy. The administration was 

committed to high levels of transparency and accountability in its deployment of public monies and 

had already provided significant information to the public that struck the right balance between 

proper oversight and appropriate protection of borrowers’ proprietary information.

OPTIONS FOR ADDITIONAL MONETARY STIMULUS 

45. In response to COVID-19, the Fed has already taken extraordinary actions to support 

the economy and maintain the smooth functioning of financial markets. Despite this, the Fed’s 

own forecasts anticipate that both inflation and employment will remain below its medium-term 

goals for the next several years. This could exacerbate longer-term damage to the economy and 

create the risk of a downward de-anchoring of inflation expectations. This points to a need to 

strengthen monetary support in the coming months to more quickly bring the economy back to 

maximum employment and 2 percent inflation. Such additional support would complement the 

fiscal measures that are outlined above and would have positive spillover effects through supporting 

demand and further easing financial conditions globally. However, these policies are likely to

provide additional incentives for financial risk taking, increased leverage, and a shift of resources 

toward more risky activities (indeed, these are likely to be the principal transmission channels of 

these monetary policies). 

A. Asset Purchase Programs

46. Empirical evidence suggests that past asset purchases have had measurable effects on 

financial conditions. Between 2009 and 2014, the Fed purchased US$2 trillion in Treasury securities, 

which are estimated to have lowered 10-year Treasury yields by around 100 basis points (although 

there are a range of estimates in the literature and there appears to be evidence of diminishing 

returns with each round of purchases).

47. There are some downsides to the Fed maintaining a very large balance sheet over an 

extended horizon. If the Fed holds a relatively long duration portfolio of assets, there is a potential 

for mark-to-market losses on the Fed’s bond portfolio and, if the rate of interest on excess reserves 

rises above the average return on its asset holdings, for a reduction in its net income position. A

significant increase in the Fed’s asset holdings could have adverse effects on trading volume or

increase political pressure on the Fed to maintain its purchases. Increasing asset purchases could 

encourage greater risk-taking and excessive leverage, amplifying financial stability risks. Finally, 
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exiting an expanded asset purchase program would need to be handled carefully (as the “taper 

tantrum” vividly demonstrated). 

48. On balance, there appears to be scope to further scale up purchases of Treasury bonds 

and mortgage backed securities to provide greater monetary stimulus in support of the 

recovery. Purchases of Treasury and agency debt is a well-trodden policy option that is 

straightforward to communicate. However, with short-term interest rates already expected to remain 

at the effective lower bound for several years, the effect of such purchases is likely to be relatively 

modest. 

B. Forward-Guidance 

49. There appear to be relatively few downsides to strengthening forward guidance, 

although there are potential reputational risks if the central bank makes commitments that 

subsequently become difficult to carry through on. If sufficient consensus can be built among 

voting members of the FOMC, the Fed could commit to maintain the policy rate at the lower bound 

at least until core or headline PCE inflation rises above 2 percent for a sustained period of time. The 

Fed would explicitly aim to temporarily overshoot its medium-term inflation goal. This would help 

raise inflation expectations (or prevent a downward de-anchoring of inflation expectations) and 

lower real interest rates today, providing direct support to aggregate demand. Alternatively, a policy 

of temporary price level targeting could be pursued to provide greater structure around the Fed’s 

strategy. 

50. The Fed could complement its more explicit forward guidance by strengthening other 

tools for communication. As has been argued in previous Article IVs, this could include replacing 

(or supplementing) the Summary of Economic Projections with a quarterly, internally-consistent 

economic projection that is endorsed by the FOMC. Such a projection would include a description of 

the FOMC’s view of risks around this baseline forecast (potentially with alternative quantified 

scenarios that show the range of risks around this baseline and the likely policy path if those 

scenarios were realized). Such a set of quantified scenarios could be especially valuable at the 

current juncture given the significant uncertainty about the outlook resulting from COVID-19. 

Finally, the Fed could provide greater clarity on the planned size of its future asset purchases and, in 

time, give clear and early guidance on how it will eventually normalize its balance sheet.

C. Yield Curve Control

51. Yield curve control could represent an additional strategy to strengthen the Fed’s 

forward guidance on the future path of policy rates. Even if market participants currently expect 

the federal funds rate to remain at its effective lower bound through the medium term, the 

introduction of an effective yield curve control policy could help prevent those expectations from 

changing prematurely (as happened during the previous recovery). The downside to yield curve 

control is that, given the size and global nature of the Treasury market, enforcing a yield target 

could require very large purchases of government bonds, which, in turn, could increase risks to the 
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Fed’s balance sheet (that would rise along with the duration of the bonds that are purchased). 

Furthermore, there is relatively little empirical evidence on the extent to which yield curve control 

can boost demand and support a faster recovery (especially when yields are already at historic lows). 

Finally, capping yields will inevitably dampen the important price signals that the Treasury markets 

provide (at least at shorter maturities). 

52. Despite these downsides, yield curve control that is focused on the short-to-medium 

part of the yield curve could be a useful complement to an enhanced approach to forward 

guidance. One possibility is for the FOMC to commit to not raise rates until PCE inflation rises 

above 2 percent. The Fed could then cap interest rates at zero at maturities at least until the horizon 

at which the FOMC-endorsed forecast of PCE inflation rises above 2 percent. Doing so would 

reinforce the FOMC’s guidance on how long it expects to remain at the effective lower bound. The 

parameters for yield curve control could then be revisited on a quarterly basis. However, as with an 

expansion of asset purchases, it should be expected that the incremental stimulus implied by such a 

policy is likely to be relatively modest. Rather, it’s main effect would be to strengthen forward 

guidance and provide some insurance that yields in the future will remain aligned with that 

guidance.

D. Negative Interest Rates

53. The target range for the federal funds rate is now at 0 to 1⁄4 percent and the Fed could 

follow other central banks and target a negative policy rate. Targeting a negative federal funds 

rate could lower rates across the yield curve and strengthen the effects of forward guidance, helping 

to stimulate demand. However, where banks are unable to pass negative rates on to depositors, 

negative rates could worsen bank profitability and cause a reduction, not increase, in lending. 

Tiering (i.e. exempting a portion of reserves from the negative rate) could, though, cushion some of 

the negative impact on bank profitability and steps could be taken to forestall wholesale cash 

hoarding by financial firms, insurance companies, and pension funds (to increase the effectiveness of 

negative policy rates).

14

54. On balance, the risk-reward trade-off for negative rates does not appear to favor the 

introduction of negative policy rates in the U.S. The effects of negative rates on activity and 

inflation are likely to be small and highly uncertain (especially given the limits on how negative the 

policy rate could be). In addition, the U.S. banks are more reliant on deposit funding than European 

14 For example, cash hoarding can be disincentivized by moving toward an electronic central bank currency.
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or Japanese banks which could dissipate (or reverse) the 

potential stimulative effects of such a policy. Finally, 

negative rates would reduce the profitability of money 

market mutual funds and could trigger a significant 

withdrawal from such funds (which are important 

providers of liquidity to the broader financial system). 

Money market funds may also be pushed by negative 

rates to change their product offerings and start 

investing in riskier, higher yielding assets. These effects 

could represent risks to market functioning and financial 

stability that would be difficult to predict.

E. Expanded Lending or Increased Purchases of Marketable Securities 

55. The size and duration of the existing credit and loan facilities could potentially be 

expanded. Many of these facilities are slated to terminate over the next 3-6 months. So far, the 

various facilities (excluding central bank swap lines) have been well below their announced size. In 

addition, only around one-half of the US$454 billion appropriated by Congress as a backstop for 

these facilities has been committed so far. An expansion of such credit facilities would increase the 

Fed’s footprint in the allocation of credit but would increasingly put the Fed in the uncomfortable 

position of determining the entities that are—and are not—eligible for Fed purchase programs. This, 

in turn, could create controversy, increase political scrutiny, and ultimately undermine the Fed’s 

independence and reputation. Scaling up the size of the Fed’s security purchases could also result in 

a loss of market functioning (as the Fed becomes a significant buy-and-hold investor in certain 

assets).

56. On balance, direct lending and the purchase of marketable securities should continue 

to be used for emergency liquidity support but not relied on to provide demand stimulus. The 

introduction of a broad range of facilities was instrumental in correcting market dysfunction and 

improving the transmission of monetary policy. Their broad scope was warranted by uncertainties 

about which parts of the financial system would face market dysfunction. In this regard they have 

been successful. However, going forward, if there were a need to do more to provide credit, or 

credit guarantees, to certain parts of the system such activities should be undertaken by the 

Treasury rather than by the Federal Reserve15. 

57. Authorities’ views. The Federal Reserve was actively considering a range of further policy 

options that could be used, if needed, to counter the effects of the pandemic. Policymakers had a 

significant amount of ammunition that could be deployed and there was no limit to the amount of 

15 For example, in 2009, the American Recovery and Reinvestment Act introduced Build America Bonds which 

provided a subsidy to state and local governments of 35 percent of the interest (or a refundable tax credit directly to 

the bondholders). The Troubled Asset Relief Program also introduced the Home Affordable Modification Program 

which offered interest rate reductions, fixing the interest rate, principal reduction or forbearance, and term extension 

to homeowners that were facing foreclosure. 
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liquidity the Fed could provide to financial markets. There was a strong commitment by the FOMC 

to doing everything necessary to support the economy for as long as was needed. While the Fed 

was ready to use its full range of tools to support the U.S. economy—including asset purchases and 

changes to forward guidance—it did not regard negative interest rates as an appropriate or useful 

policy for the U.S. No decision had yet been taken on yield curve control and discussions around the 

topic were at an early stage. The FOMC intended, in the coming months, to return to the completion 

of its monetary policy framework review, which could lead to revisions to its Statement on LongerRun Goals and Monetary Policy Strategy. The expectation was that the various 13(3) interventions 

would expire gradually in the coming months, as had been previously announced, and that take-up 

of the facilities would depend on the broader trajectory of the economy.

FINANCIAL SYSTEM OVERSIGHT

58. The ongoing, real-time, economic and financial stress test experienced over the past 

few months has shown the U.S. financial system to be both resilient and flexible. Banks entered 

the current crisis with sizable capital and liquidity buffers and nonbanks and capital markets have 

largely absorbed unprecedented shifts in portfolios. However, the ongoing recession, combined with

the rise in corporate leverage and migration of risks to nonbank financial institutions could result in 

a severe financial strain. Banks’ capital depletion rates are expected to be large, given the sharp 

economic contraction, but manageable. Stress tests contained in the FSSA found that, even in a 

downside scenario—relative to the already-stressed baseline forecast—banks would need a 

relatively small amount of incremental capital (i.e., 1.7 percent of GDP over a three year horizon) to 

meet Tier-1 common equity regulatory requirements; these needs could largely be met from a 

temporary suspension of shareholder payouts. 16 Nonetheless, future capital depletion is subject to 

multiple sources of uncertainty, including the duration and intensity of COVID-19 containment 

measures. Banks are generally very liquid and, even under severe assumptions (i.e., a 40 percent 

drawdown of credit and liquidity lines, and closure of repo markets), only one GSIB would be unable 

to fund its cash needs for 30 days.

59. Despite extraordinary shifts in economic outcomes and a massive global portfolio 

reallocation, systemic financial stability concerns have been relatively muted. Market 

dysfunction was quickly resolved through the Federal Reserve’s provision of emergency support and 

regulatory frictions were quickly addressed through temporary carve-outs of exposures under the 

emergency credit and liquidity facilities.

60. The Federal Reserve has taken steps to prohibit share buybacks and limit dividend 

payments by banks. Although the Federal Reserve did not object to banks’ capital plans it did take 

steps to preserve bank capital by suspending share repurchases and capping dividends (to be below 

the bank’s income over the preceding four quarters). These restrictions are applicable for the third 

16 The Federal Reserve released the results of its Comprehensive Capital Analysis and Review exercise as well as 

additional COVID-19 sensitivity analysis. The results suggest that the largest U.S. banks would face up to US$700 

billion in credit losses and some of them would fall close to the minimum capital requirement in the most severe 

sensitivity test
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quarter and may be extended on quarter-by-quarter basis. Banks will have to re-assess their capital 

needs and resubmit capital plans later this year. While these measures were welcome, more 

stringent actions are needed to preserve strong capital buffers. This should involve tighter limits on 

dividend distributions and a re-evaluation of the differential treatment of buybacks and dividend 

payments. Finally, the binding period for these measures should be extended into 2021.

61. There are areas where institutional changes could further strengthen systemic 

oversight and lessen vulnerabilities. As elaborated in greater detail in the accompanying FSSA, an 

explicit financial stability mandate should be provided to all of the federal FSOC members and crisis 

preparedness efforts of the FSOC should be intensified. The development of macroprudential tools 

to manage systemic risks in the nonbanks remains an important priority and the FSOC should direct 

its members to work together on this issue. To strengthen their independence, the Commodity 

Futures Trading Commission and Securities and Exchange Commission should be given greater 

independence to determine their own resources (rather than as part of an annual appropriations 

process). It would be appropriate to increase the Commodity and Futures Trading Commission’s 

resources that are devoted to the supervision of central counterparties, make risk management 

requirements consistent across these entities, and execute more comprehensive systemwide stress 

tests of central counterparties. Within the existing framework of state-level regulation and 

supervision of insurance, there is a need to increase the independence of state insurance regulators, 

gradually transition to principles-based reserving for insurers, and develop a consolidated group 

capital requirement that is consistent with international practice. Plans should be developed to 

ensure market functioning is preserved in the event the Bank of New York Mellon becomes unable 

to settle and clear repo transactions. Finally, the provision of bilateral emergency liquidity assistance 

to systemically important nonbanks should be permitted. 

62. There are also some aspects of the supervisory and regulatory framework that could 

be strengthened. For example, the most salient aspects of prudential guidance for banks could be 

reformulated as regulation. Also, following the recent tailoring of regulations, prudential 

requirements for non-internationally active banks should be reviewed to ensure they are, and 

continue to be, broadly consistent with the Basel capital framework and appropriate liquidity and 

concentration limits. Liquidity stress testing could be applied by the SEC to money market funds. 

The federal banking agencies should encourage banks to explicitly allow for the use of the discount 

window in their short-term liquidity planning (allowing Treasuries and bank reserves to be fully 

fungible). Finally, there is a continuing need to address data gaps to provide financial regulators 

with a fuller picture of the entire financial system and the interconnections between institutions and 

markets. 

63. Progress is also needed to address data gaps. Data gathering on bilateral repo, triparty

repo, securities lending, and asset management is at early stages. The trade reporting and 

compliance engine (TRACE) pilot for data reporting on Treasury securities should be a permanent 

feature of the system. To build a clear view of interconnections, data on interbank exposures should 

be expanded from the six U.S. GSIBS to a fuller sample of banks. Finally, data is needed to provide a 

better picture of the holdings of collateralized loan obligations, institutions’ direct and indirect 

exposures to leveraged and private loans, and the various channels that connect nonbanks with the 

rest of the system.
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64. Authorities’ views. The U.S. financial system entered the current crisis in a strong position 

and has handled well the upheaval experienced over the past few months. The U.S. authorities 

reacted quickly with a number of significant actions, such as liquidity facilities available to banks and 

nonbanks. They would continue to carefully scrutinize developments, including in levels of leverage 

and credit quality in the months ahead. The policy actions taken to mitigate financial market 

disruptions and support the economy had led to much-improved financial conditions. However, 

market conditions remain fragile and require continued support. Clear communications will help 

mitigate the risk of market participants becoming complacent. The authorities were carefully 

considering the recommendations of the FSAP and were continuing to work to strengthen the 

institutional framework for financial stability, which remains advanced in implementing the G-20 

financial regulatory reforms and meeting international standards. They will continue to review 

regulation and supervision to maintain safety and soundness of the U.S. financial system while 

calibrating requirements to the level of risk posed

TRADE POLICY

65. The crisis underscores the importance of open trade for the U.S. and global economies. 

As the pandemic spread, the U.S. avoided the use of trade restrictions on critical health products 

and food, providing a positive example to others. However, the U.S. still maintains the bulk of the

trade restrictions and tariffs that were imposed in 2018-19 and U.S. exports continue to be adversely 

affected by similar measures taken by trading partners. Also, the U.S. decision to block 

appointments to the WTO Appellate Body will detract from the enforceability of WTO legal rulings 

and could weaken other members’ adherence to WTO obligations. The authorities should work 

actively with others on WTO reform to address important gaps in WTO rules. Efforts should be made

to reverse trade restrictions and tariff increases while working with partner countries (through both 

bilateral channels and the WTO) to address the policies that distort trade flows and investment 

decisions. 

66. The application of countervailing duties on imports from countries that the 

Department of Commerce finds to have an undervalued currency could potentially escalate 

trade tensions and have negative spillovers for other countries. In particular, treating currency 

undervaluation as a subsidy to be countervailed raises concerns both in the finance and trade 

spheres. The threat of trade penalties could potentially impinge on monetary policy decisions and 

discourage exchange rate flexibility, while complicating effective dialogue that underpins economic 

surveillance. Furthermore, other countries might pursue a similar policy, perhaps using their own 

standards and methodologies, with the potential for a broadening use of trade restrictions and a 

further increase in trade tensions. 

67. Authorities’ views. The administration remained committed to pursuing the benefits of 

open international trade and investment but recognized there were clear shortcomings in the 

operation of the existing system. The authorities highlighted various efforts to incentivize 

investment and production in the U.S., including the United States-Mexico-Canada Agreement. This 

high-standard agreement, with two of the largest trading partners, includes innovative new 
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provisions that will incentivize production in the U.S. and promote the development of North 

American supply chains. The U.S. is pursuing a trade agreement with the United Kingdom and seeks 

to conclude a comprehensive, high-standard agreement with Kenya that can serve as a model for 

additional agreements in Africa, leading to a network of agreements that contribute to Africa’s

regional integration objectives. The authorities believed that significant reform of the World Trade 

Organization is needed, particularly in the area of dispute settlement, but also in the areas of 

transparency and the application of special and differential treatment for developing countries. The 

authorities highlighted the Economic and Trade Agreement between the U.S. and China, which went 

into effect in February 2020, and they expected this agreement to have a significant positive impact 

for both China and the U.S. Nonetheless, the U.S. had a number of serious concerns about certain 

acts and policies being undertaken by China (which were detailed in the administration’s section 301 

report). Accordingly, the U.S. has kept in place tariffs on a wide range of Chinese goods. Finally, the 

authorities indicated their concern that France’s digital services tax was unreasonable or 

discriminatory and, as a result, burdened or restricted U.S. commerce. This justified the imposition of 

ad valorem duties of 25 percent on a range of French products. The authorities indicated that similar 

assessments were being made of other countries’ taxes on digital services but no decision had yet 

been made in these cases. The authorities underlined their commitment to preserving and renewing 

an international consensus on the taxation of multinational enterprises in a rapidly changing global 

economy, including through discussions at the OECD.

GOVERNANCE AND TRANSPARENCY17

68. The U.S. is substantially effective at investigating and prosecuting money laundering 

and cooperating with other jurisdictions over corruption proceeds in the U.S. Since last year’s 

consultation the U.S. has improved its compliance on customer due diligence by requiring all 

covered FIs18, to collect and verify beneficial ownership information for companies and some trusts 

that are customers.19 Nonetheless, there remain some serious shortcomings related to entity 

transparency and the content and coverage of preventive measures, including in relation to 

identifying politically exposed persons, that may make it easier for foreign corrupt officials to hide 

their proceeds in the U.S., including proceeds that might be diverted from COVID-19 related

spending initiatives. Measures should be further strengthened to facilitate timely access to beneficial 

ownership information of all customer types and to obtain such information about companies upon 

formation (and thus speed up investigations and help prevent the abuse of legal entities for money 

17 In line with the Framework for Enhanced Engagement on Governance, this section updates efforts to prevent 

foreign public officials from concealing the proceeds of corruption in the U.S. economy. The extent to which the U.S. 

criminalizes and prosecutes the bribery of foreign public officials (“supply side of corruption”) will be reported on in 

the 2021 Article IV Consultation. The OECD peer review of the U.S. framework to assess the implementation and 

enforcement of the Convention on Combating Bribery of Foreign Public Officials in International Business 

Transactions is due to be adopted in October 2020.

18 Banks, brokers or dealers in securities, mutual funds, and future commission merchants and introducing brokers in 

commodities.

19 See FSSA. The FATF upgraded the U.S. technical compliance with customer due diligence requirements from 

partially to largely compliant, see: http://www.fatf-gafi.org/media/fatf/documents/reports/fur/Follow-Up-ReportUnited-States-March-2020.pdf
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laundering purposes). Improvements are also needed to make lawyers, accountants, and trust and 

company service providers subject to customer due diligence and suspicious transaction reporting 

obligations. Action is also needed to address money laundering risks in high-end real estate, where 

real estate agents are not subject to comprehensive AML/CFT requirements and where non-bank 

mortgage lenders and originators have limited awareness of obligations, especially with regard to 

politically exposed persons. 

STAFF APPRAISAL

69. The longest expansion in U.S. history has been derailed by the unanticipated advent of 

COVID-19. To preserve lives and support public health, it was necessary to put in place a broadbased shutdown of the U.S. economy in March. Despite the gradual easing of state lockdown 

restrictions and lifting of stay-at-home orders starting in late April, the collateral economic damage 

has been enormous. First, and foremost, as of July 16, more than 136,000 Americans have tragically 

lost their lives and many more have become seriously ill. Almost fifteen million Americans have lost 

their jobs, many small and large businesses are under financial stress, and future prospects are 

highly uncertain. Reopening decisions will have to be handled carefully to mitigate the economic 

costs while containing the ongoing rise in COVID-19 inflection rates. It will likely take a prolonged 

period to repair the economy and to return activity to pre-pandemic levels. All in all, globally there 

will be difficult months and years ahead and it is of particular concern that the number of COVID-19 

cases in the U.S. is still rising.

70. The poorest households face a particularly precarious situation. The economic costs of 

the crisis are being borne disproportionately by the poor and vulnerable, bringing into stark relief 

deep inequities that have long afflicted the U.S. The pandemic has also underscored some of the 

structural shortcomings of the U.S. health system with the provision of healthcare fragmented, 

decentralized, predominantly employer-based, at high cost, and with a significant share of lowincome households lacking coverage. The nature of the pandemic has created particularly large 

strains for labor intensive, face-to-face services (which tend to employ a large share of lower-income

workers) and the unemployment rate among lower income households, that have few financial 

buffers, is expected to remain high for a protracted period. Poverty rates and other social strains are 

expected to exceed those that were experienced in the wake of the global financial crisis. 

71. In the face of this unprecedented shock, U.S. policymakers acted quickly and 

assertively to protect livelihoods and businesses and to mitigate the lasting economic costs of 

the pandemic. The Federal Reserve took unprecedented steps to provide monetary stimulus, to 

underpin the smooth functioning of domestic and international financial markets, to support the 

flow of credit, and to strengthen the transmission of monetary policy. At the same time, a range of 

fiscal measures were put in place to assist small businesses and specific sectors (such as airlines), 

increase resources to healthcare providers, expand unemployment insurance, create incentives for 

firms to retain workers, transfer cash directly to households, and provide resources to state and local 

governments. 
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72. Further policy efforts will be needed to counter the pandemic and also address a range 

of deep-rooted social and economic challenges that continue to afflict the U.S. Prior to the 

pandemic, even after a decade-long expansion, the U.S. faced troubling social and economic 

outcomes related to poverty; inequalities of opportunity and declining socioeconomic mobility; an 

increasingly polarized income distribution; rising barriers to trade and foreign investment; and an 

unsustainable upward path for public debt. It will be important, therefore, to ensure that policy 

solutions put in place to tackle the consequences of the pandemic are simultaneously geared 

toward reshaping the existing systems for social assistance, education and healthcare (to expand 

opportunities and lessen inequities); investing in infrastructure; helping create more open, stable, 

and transparent trade policies, underpinned by a strengthened international system; and, over the 

medium-term, putting the public debt-GDP ratio on a downward path.

73. Pursuing these multiple objectives will require a further round of fiscal measures in 

the coming months that boost demand, increase health preparedness, and support the most 

vulnerable. The U.S. has some fiscal space and it should be deployed quickly to hasten the recovery

from the second quarter contraction, permanently improve the social safety net, and facilitate a 

broader remaking of the U.S. economy. Efforts are also needed to prepare for future health crises (or 

a resurgence in COVID-19) and ensure that those without medical insurance have access to 

affordable, quality health care. 

74. There is potential to bolster the monetary support that has already been put in place. 

In the coming months, asset purchases could be scaled up to increase policy stimulus and the 

Federal Reserve could adapt its forward guidance to more firmly anchor market expectations about 

the future path for policy. Now would be an opportune time to begin shaping Fed communications 

around an internally-consistent economic projection that is endorsed by the FOMC with alternative,

quantified scenarios that show the range of risks around this baseline. These actions could 

potentially be supported by introduction of yield curve control. The current credit facilities should be 

regarded as unusual and exigent tools and should be phased-out (as planned). The risk-reward 

trade-off does not appear to favor the introduction of negative policy rates in the U.S. context. 

75. Efforts should be made to reverse existing trade restrictions and tariff increases while 

working with partner countries to address policies that distort trade flows and investment 

decisions. There is a clear need to address trade and investment distortions in areas such as tariffs, 

farm subsidies, industrial subsidies, and services trade. However, the imposition of import tariffs (and 

other steps taken by the administration) is undermining the openness and stability of global trade 

by increasing restrictions on trade in goods and services, and catalyzing a cycle of retaliatory trade 

responses. The potential imposition of countervailing duties on imports from countries that the 

Department of Commerce finds to have an undervalued currency represents a significant risk to the 

multilateral trade and international monetary system which could potentially escalate trade tensions,

harming the U.S. economy and having negative spillovers for other countries. Instead, the U.S. 

should work constructively with its trading partners to better address these underlying distortions.

76. The external position was moderately weaker than the level implied by medium-term 

fundamentals and desirable policies in 2019. An increase in private sector saving and a decline in 
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investment is expected to offset the increased fiscal deficit. This would imply a current account 

deficit of around 2 percent of GDP in the coming years. However, there is significant uncertainty 

surrounding this forecast.

77. The real-time economic and financial stress test experienced over the past few months 

has shown the U.S. financial system to be both resilient and flexible. While the crisis has been 

devastating on many dimensions, the financial system has responded flexibly to the unprecedented 

macro-financial shock. The system experienced important liquidity problems in the early days of the 

crisis but these were quickly resolved by prompt action by the Federal Reserve. Banks entered the 

current crisis with sizable capital and liquidity buffers and nonbanks and capital markets have largely 

absorbed the unprecedented shifts in portfolios. Nonetheless, the crisis is at an early stage and 

deteriorating credit quality of both household and corporate lending is likely to be increasingly 

visible in the coming months. This argues for continued restraint on banks’ capital distribution plans. 

78. The Financial Sector Assessment Program findings reveal a number of areas where the 

U.S. system of financial oversight could be adapted to further mitigate systemic risks. The 

priorities should include introducing an explicit financial stability mandate for the principal 

regulators, increasing the budgetary independence of the Commodity Futures Trading Commission, 

Securities and Exchange Commission, and state-level insurance regulators, developing 

macroprudential policies to mitigate the growing vulnerabilities outside of the core banking system,

and intensifying the crisis preparedness function of the Financial Stability Oversight Council. There is 

scope to improve risk management and the stress testing of central counterparties as well as to 

transition to principles-based reserving and develop consolidated group capital requirements for 

insurers. Prudential requirements for non-internationally active banks should be reviewed to ensure

they are, and continue to be, consistent with the Basel capital framework and appropriate liquidity 

and concentration limits. It would be appropriate to allow banks to assume full access to the 

discount window as part of the liquidity planning process (allowing Treasuries and bank reserves to 

be fully fungible). Finally, important data gaps continue to obscure regulators’ visibility on the nature 

of systemic interconnections and vulnerabilities; this will require sustained efforts to address.

79. It is recommended that the next Article IV consultation take place on the standard 

12-month cycle.
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Table 1. United States: Selected Economic Indicators

2018 2019 2020 2021 2022 2023 2024 2025

National production and income

Real GDP 2.9 2.3 -6.6 3.9 3.3 2.3 1.9 1.8

Real GDP (q4/q4) 2.5 2.3 -6.9 5.1 2.8 2.0 1.9 1.8

Net exports 1/ -0.3 -0.1 0.1 -0.2 -0.1 0.0 0.0 0.0

Total domestic demand 3.1 2.4 -6.5 4.0 3.3 2.3 1.9 1.8

Final domestic demand 3.0 2.3 -5.9 4.0 3.3 2.2 1.9 1.8

Private final consumption 3.0 2.6 -7.8 5.4 3.7 2.3 1.8 1.8

Public consumption expenditure 1.7 1.8 1.7 1.7 1.3 1.1 0.8 0.6

Gross fixed domestic investment 4.1 1.8 -5.0 1.4 3.3 3.0 2.8 2.6

Private fixed investment 4.6 1.3 -6.7 1.2 3.6 3.2 3.0 2.9

Public fixed investment 2.0 4.5 3.4 2.7 2.3 2.0 1.7 1.5

Change in private inventories 1/ 0.1 0.1 -0.6 0.0 0.0 0.0 0.0 0.0

Nominal GDP 5.4 4.1 -5.4 6.1 5.4 4.3 3.9 3.8

Personal saving rate (% of disposable income) 7.7 7.9 16.2 11.2 8.4 7.8 7.8 7.8

Private investment rate (% of GDP) 17.6 17.5 16.9 16.4 16.4 16.6 16.7 16.9

Unemployment and potential output

Unemployment rate 3.9 3.7 9.2 8.1 6.3 5.0 4.3 4.2

Labor force participation rate 62.9 63.1 62.0 62.3 62.5 62.4 62.3 62.2

Potential GDP 1.6 1.6 -0.9 0.7 2.1 2.0 1.9 1.9

Output gap (% of potential GDP) 0.2 0.9 -4.9 -1.8 -0.6 -0.4 -0.4 -0.5

Inflation

CPI inflation (q4/q4) 2.2 2.0 0.9 2.4 2.3 2.3 2.2 2.2

Core CPI Inflation (q4/q4) 2.2 2.3 1.2 2.0 2.2 2.2 2.2 2.2

PCE Inflation (q4/q4) 1.9 1.4 0.7 2.1 2.0 2.0 2.0 2.0

Core PCE Inflation (q4/q4) 1.9 1.6 0.8 1.8 1.9 1.9 1.9 1.9

GDP deflator 2.4 1.7 1.2 2.1 2.0 2.0 2.0 2.0

Government finances

Federal balance (% of GDP) 2/ -3.8 -4.6 -18.0 -10.4 -5.4 -4.5 -4.7 -4.9

Federal debt held by the public (% of GDP) 77.4 79.2 99.6 107.4 106.8 106.8 107.4 108.3

General government budget balance (% of GDP) 2/ -5.8 -6.3 -22.8 -11.5 -7.4 -6.5 -6.5 -6.3

General government gross debt (% of GDP) 107.1 108.7 138.2 142.2 142.8 143.9 145.3 146.6

Interest rates (percent; period average)

Fed funds rate 1.8 2.2 0.4 0.1 0.1 0.1 0.1 0.1

Three-month Treasury bill rate 2.0 2.1 0.4 0.1 0.0 0.0 0.0 0.0

Ten-year government bond rate 2.9 2.1 0.9 0.9 1.3 1.7 1.8 1.8

Balance of payments

Current account balance (% of GDP) -2.19 -2.2 -2.2 -2.1 -2.1 -2.1 -2.0 -2.0

Merchandise trade balance (% of GDP) -4.3 -4.0 -3.9 -3.8 -3.8 -3.8 -3.7 -3.7

Export volume (NIPA basis, goods) 4.3 0.2 -11.2 6.3 5.5 4.6 2.9 2.3

Import volume (NIPA basis, goods) 5.0 0.3 -9.2 6.9 4.6 3.7 2.4 2.1

Net international investment position (% of GDP) -47.0 -51.6 -61.2 -59.8 -58.8 -58.5 -58.3 -58.2

Saving and investment (% of GDP)

Gross national saving 18.4 18.1 17.9 17.4 17.4 17.6 17.8 18.0

General government -3.3 -3.8 -15.1 -9.1 -4.9 -4.0 -3.9 -3.9

Private 21.8 21.9 32.9 26.5 22.3 21.5 21.7 21.9

Personal 5.9 6.1 13.1 8.7 6.4 5.9 5.9 5.9

Business 15.9 15.8 19.8 17.7 15.9 15.7 15.9 16.0

Gross domestic investment 21.0 20.9 20.7 20.1 20.1 20.2 20.4 20.6

Private 17.6 17.5 16.9 16.4 16.4 16.6 16.7 16.9

Public 3.3 3.4 3.8 3.7 3.7 3.7 3.7 3.7

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

1/ Contribution to real GDP growth, percentage points.

2/ Includes staff's adjustments for one-off items, including costs of financial sector support.

(percentage change from previous period, unless otherwise indicated)

Projections
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INTERNATIONAL MONETARY FUND 49

Table 2. United States: Balance of Payments

2018 2019 2020 2021 2022 2023 2024 2025

Real exports growth

Goods and services 3.0 0.0 -10.8 6.7 4.7 4.0 2.8 2.4

Goods 4.3 0.2 -11.2 6.3 5.5 4.6 2.9 2.3

Services 0.7 -0.4 -10.1 7.3 3.3 2.8 2.7 2.6

Real imports growth

Goods and services 4.4 1.0 -9.3 6.7 4.3 3.5 2.3 2.1

Goods 5.0 0.3 -9.2 6.9 4.6 3.7 2.4 2.1

Nonpetroleum goods 6.0 1.0 -9.4 7.5 5.1 4.2 2.7 2.4

Petroleum goods -4.9 -7.0 -7.1 -3.8 -3.2 -3.2 -3.2 -3.2

Services 1.6 4.2 -9.8 5.9 2.8 2.3 2.1 2.1

Net exports (contribution to real GDP growth) -0.3 -0.1 0.1 -0.2 -0.1 0.0 0.0 0.0

Nominal exports

Goods and services 12.2 11.7 10.7 10.8 10.9 11.0 11.1 11.1

Nominal imports

Goods and services 15.3 14.6 13.6 13.7 13.7 13.8 13.9 13.8

Current account

Current account balance -2.2 -2.2 -2.2 -2.1 -2.1 -2.1 -2.0 -2.0

Balance on trade in goods and services -2.8 -2.7 -2.7 -2.6 -2.6 -2.6 -2.5 -2.5

Balance on income 0.6 0.5 0.5 0.5 0.5 0.5 0.5 0.5

Capital and Financial Account

Capital account balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Financial account balance -2.0 -1.8 -2.2 -2.1 -2.1 -2.1 -2.0 -2.0

Direct investment, net -2.0 -0.8 -0.8 -1.0 -1.0 -0.9 -0.9 -1.0

Portfolio investment, net 0.2 -0.6 -0.2 0.6 0.8 0.2 0.4 0.6

Financial derivatives, net -0.1 -0.2 0.0 -0.1 -0.1 -0.1 -0.1 -0.1

Other investment, net -0.1 -0.3 -1.1 -1.7 -1.7 -1.4 -1.4 -1.5

Reserve assets, net 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Errors and Omissions 0.2 0.4 0.0 0.0 0.0 0.0 0.0 0.0

Net International Investment Position -47.0 -51.6 -61.2 -59.8 -58.8 -58.5 -58.3 -58.2

Direct investment, net -4.7 -8.2 -9.4 -9.8 -10.4 -10.8 -11.3 -11.9

Portfolio investment, net -36.0 -37.4 -43.6 -40.6 -37.8 -36.1 -34.4 -32.7

Financial derivatives, net 0.2 0.1 0.2 0.1 0.1 0.1 0.1 0.1

Other investment, net -8.7 -8.5 -11.0 -12.0 -13.1 -14.0 -14.9 -15.9

Reserve assets, net 2.2 2.4 2.7 2.5 2.4 2.3 2.2 2.1

Memorandum items

Current account balance (US$ billions) -450 -480 -436 -447 -478 -496 -500 -510

Non-oil trade balance (% of GDP) -2.8 -2.8 -3.0 -3.0 -3.0 -3.0 -3.0 -3.0

Foreign real GDP growth 2.6 1.6 -7.3 4.7 3.3 2.7 2.6 2.5

U.S. real GDP growth 2.9 2.3 -6.6 3.9 3.3 2.3 1.9 1.8

U.S. real total domestic demand growth 3.1 2.4 -6.5 4.0 3.3 2.3 1.9 1.8

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

Projections
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50 INTERNATIONAL MONETARY FUND

Table 3. United States: Federal and General Government Finances

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

Federal government

Revenue 16.4 16.3 13.1 15.2 17.3 17.5 16.9 17.0 17.5 17.9 17.8 17.8 17.8

Expenditure 20.2 21.0 31.1 25.6 22.7 22.0 21.7 21.9 22.1 22.2 22.7 22.2 22.4

Non-interest 18.6 19.2 29.4 23.9 21.2 20.7 20.5 20.9 21.1 21.1 21.6 21.1 21.3

Interest 1.6 1.8 1.7 1.7 1.5 1.3 1.1 1.0 1.0 1.1 1.1 1.1 1.1

Budget balance 1/ -3.8 -4.6 -18.0 -10.4 -5.4 -4.5 -4.7 -4.9 -4.6 -4.3 -4.9 -4.3 -4.6

Primary balance 2/ -2.2 -2.9 -16.2 -8.7 -3.9 -3.2 -3.6 -3.9 -3.6 -3.2 -3.8 -3.2 -3.5

Primary structural balance 3/ 4/ -2.2 -3.0 -13.9 -7.6 -3.5 -3.0 -3.4 -3.7 -3.4 -3.0 -3.5 -3.0 -3.2

 Change -0.5 -0.8 -10.9 6.3 4.1 0.5 -0.4 -0.3 0.3 0.4 -0.5 0.5 -0.2

Federal debt held by the public 77.4 79.2 99.6 107.4 106.8 106.8 107.4 108.3 108.8 109.0 109.8 109.9 110.4

General government

Revenue 29.6 29.4 25.5 28.4 30.4 30.4 30.0 30.3 30.9 31.2 31.1 31.1 31.1

Expenditure 35.4 35.7 48.3 40.0 37.7 36.9 36.5 36.6 36.6 36.7 36.9 36.5 36.6

 Net interest 2.2 2.2 2.4 2.2 2.0 1.8 1.6 1.5 1.3 1.3 1.3 1.3 1.3

Net lending 1/ -5.8 -6.3 -22.8 -11.5 -7.4 -6.5 -6.5 -6.3 -5.7 -5.5 -5.7 -5.4 -5.6

Primary balance 2/ -3.6 -4.1 -20.5 -9.3 -5.4 -4.8 -4.9 -4.9 -4.4 -4.2 -4.4 -4.1 -4.3

Primary structural balance 3/ 4/ -3.4 -4.4 -16.9 -8.1 -5.0 -4.5 -4.6 -4.6 -4.1 -3.9 -4.0 -3.7 -3.9

 Change -1.2 -1.0 -12.5 8.8 3.1 0.5 -0.1 0.0 0.5 0.2 -0.2 0.4 -0.2

Gross debt 107.1 108.7 138.2 142.2 142.8 143.9 145.3 146.6 147.4 148.0 148.8 149.2 149.8

incl. unfunded pension liab. 136.6 135.4 164.5 168.1 168.2 168.9 169.9 170.9 171.2 171.4 171.8 171.8 172.0

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 Congressional Budget Office forecast adjusted for the IMF staff’s policy and 

macroeconomic assumptions. Projections incorporate the effects of legislations in responses to the COVID-19 

outbreak (Coronavirus Preparedness and Response Supplemental Appropriations Act, Families First Coronavirus 

Response Act, Coronavirus Aid, Relief and Economy Security Act and Paycheck Protection Program and Health Care 

Enhancement Act), tax reform (Tax Cuts and Jobs Act, signed into law end-2017) as well as the Bipartisan Budget Act 

of 2018 passed in February 2018. 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. Data are compiled using SNA 2008, 

and when translated into GFS this is in accordance with GFSM 2014. Due to data limitations, most series begin 2001.

Sources: Congressional Budget Office; Office of Management and Budget; and IMF staff estimates.

Projections

(percent of GDP)
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Table 4. United States: Core Financial Soundness Indicators for Deposit Takers 

2011 2012 2013 2014 2015 2016 2017 2018 2019

Regulatory capital to risk-weighted assets 14.7 14.5 14.4 14.4 14.1 14.2 14.5 14.8 14.7

Regulatory tier 1 capital to risk-weighted assets 12.6 12.7 12.8 13.1 13.1 13.2 13.5 13.8 13.8

Non-performing loans net of provisions to capital 17.6 15.7 11.7 8.8 7.2 6.6 5.7 4.7 4.3

Non-performing loans to total gross loans 3.8 3.3 2.5 1.9 1.5 1.3 1.1 0.9 0.9

Sectoral distribution of total loans: residents 95.6 95.5 95.2 95.6 95.8 96.1 96.0 96.3 96.3

Sectoral distribution of total loans: deposit-takers 6.0 6.0 5.0 4.1 3.6 3.8 3.9 5.5 4.8

Sectoral distribution of total loans: other financial corporations 3.8 4.4 5.2 6.2 6.7 6.7 6.9 7.3 7.7

Sectoral distribution of total loans: general government 0.9 1.1 1.2 1.3 1.4 1.5 1.6 1.5 1.4

Sectoral distribution of total loans: nonfinancial corporations 31.8 32.1 33.3 34.2 35.0 35.5 35.4 35.3 35.5

Sectoral distribution of total loans: other domestic sectors 53.1 51.9 50.5 49.8 49.1 48.5 48.2 46.7 46.8

Sectoral distribution of total loans: nonresidents 4.4 4.5 4.8 4.4 4.2 3.9 4.0 3.7 3.7

Return on assets 0.3 0.3 0.4 0.3 0.4 0.4 0.3 0.4 0.4

Return on equity 2.3 2.7 3.3 2.8 3.0 3.2 2.9 3.4 3.5

Interest margin to gross income 65.2 60.8 63.5 63.7 63.4 65.1 67.0 68.3 66.2

Non-interest expenses to gross income 64.5 63.6 61.7 64.7 60.7 59.6 61.6 58.4 57.3

Liquid assets to total assets (liquid asset ratio) 12.7 13.4 14.5 14.5 13.2 12.8 13.2 12.7 11.7

Liquid assets to short term liabilities 66.1 74.1 88.3 90.0 91.2 98.2 97.7 89.3 80.6

Note: 2019 data is the 2019Q3 value.

(Percent unless stated otherwise, eop)
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52 INTERNATIONAL MONETARY FUND

Appendix I. External Sector Assessment

Overall Assessment: The external position in 2019 was moderately weaker than the level implied by medium-term fundamentals and desirable 

policies in 2019. Larger private-sector saving is expected to largely offset the 2020 fiscal packages, resulting in a relatively steady CA deficit in the 

coming years. The deep economic contraction, and the effects of actual and prospective changes in fiscal, trade, and labor-market (including e.g. 

immigration) policies add uncertainty to the assessment.

Potential Policy Responses: Given the unprecedented social and economic fallout from the coronavirus outbreak and associated containment 

measures, the U.S should expand fiscal efforts to ease the burden of the shutdown on households and firms. Once the immediate health crisis 

has subsided, the U.S. should also use its fiscal space to put in place a front-loaded package that would increase investment in infrastructure, 

facilitate the transition to a lower carbon economy, and offer consumption subsidies to kick-start demand. Over the medium term, fiscal 

consolidation, aimed at a medium-term general government primary surplus of about 3/4 percent of GDP, should be reinvigorated to put the 

debt-GDP ratio on a downward path and address the CA gap. Structural policies to increase competitiveness include: upgrading infrastructure, 

enhancing schooling, training and mobility of workers, supporting the working poor, and policies to increase growth in the labor force (including 

skill-based immigration reform). Tariff barriers should be rolled back, and trade and investment disagreements with other countries should be 

resolved in a manner that supports an open, stable, and transparent global trading system.

Foreign Asset 

and Liability 

Position and 

Trajectory

Background. The net international investment position (NIIP), which averaged about -41 percent during 2014-17, 

decreased further from -46.4 percent of GDP in 2018 to -51.3 percent of GDP in 2019, including due to valuation effects 

of -4.9 percent of GDP. Under staff’s baseline scenario, the NIIP is projected to decline by about [2] percent of GDP 

through the medium term, on the back of sustained current account deficits.

Assessment. Financial stability risks could surface in the form of an unexpected decline in foreign demand for US fixed 

income securities, which are the main component of the country’s external liabilities. This risk, which could materialize 

e.g. due to a failure to re-establish fiscal sustainability, remains moderate given the dominant status of the US dollar as a 

reserve currency. Around 63 percent of US assets are in the form of FDI and portfolio equity claims.

2019 (% GDP) NIIP: -51.3 Gross Assets: 136.8 Debt Assets: 46.4 Gross Liab.: 188.1 Debt Liab.: 95.4

Current 

Account

Background. The US CA deficit decreased from 2.4 percent of GDP in 2018 to 2.3 percent in 2019 (from 2.4 to 2.0 in 

cyclically adjusted terms), compared with a deficit of 2.1 percent of GDP in 2014. The evolution since 2014 is explained 

by a deterioration of the non-oil balance. The large fiscal deficit did not lead to an increase in the CA deficit in 2019 due 

to an improving oil balance and strong income account. However, trade-balance outturns continued to be difficult to 

interpret as a result of shifts in the timing of exports and imports due to tariffs. The fiscal expansion in the wake of the 

COVID-19 crisis is expected to be offset by higher private-sector savings. Higher net exports due to compressing 

imports are projected to offset a weaker income account. The CA deficit is expected to remain at around 2 percent of 

GDP. 

Assessment. The EBA model estimates a cyclically adjusted CA of -2 percent of GDP, and a cyclically adjusted CA norm 

of -0.7 percent of GDP. The cyclically adjusted CA gap is -1.3 percent of GDP for 2019, reflecting policy gaps (-0.7

percent of GDP, of which -0.7 percent corresponds to fiscal policy) and an unidentified residual (about -0.6 percent of 

GDP) that may reflect structural factors not included in the model. On balance, staff assesses the 2019 cyclically adjusted 

CA to be -0.8 to -1.8 percent of GDP lower than the level implied by medium-term fundamentals and desirable policies. 

2019 (% GDP) Actual CA: –2.3 Cycl. Adj. CA: –2.0 EBA CA Norm: –0.7 EBA CA Gap: –1.3 Staff Adj.: 0.0 Staff CA Gap: –1.3

Real Exchange 

Rate

Background. After depreciating by 1 percent in 2018 (pa), the real effective exchange rate (REER) appreciated by 2.8 

percent in 2019 (pa). As of end-2019 the REER was thus still about 17 percent higher than the average for 2014. Through 

March 2020, the USD appreciated 3.2 percent in real terms relative to the 2019 average.

Assessment. Indirect estimates of the REER (based on the EBA current account assessment) imply that the exchange 

rate was overvalued by 11.4 percent in 2019 (applying an estimated elasticity of 0.11). The EBA REER index model 

suggests an overvaluation of 8.1 percent, and the EBA REER level model suggests an overvaluation of 10.9 percent. 

Considering all the estimates and their uncertainties, staff assesses the 2019 average REER to be somewhat overvalued, 

in the 8-14 percent range, with a midpoint of 11 percent. /1

Capital and 

Financial 

Accounts: Flows 

and Policy 

Measures

Background. Net financial inflows were about 1.8 percent of GDP in 2019, compared with 2.2 percent of GDP in 2018. 

Stronger net portfolio investment flows were offset by weaker direct and other investment flows.

Assessment. The United States has an open capital account. Vulnerabilities are limited by the dollar’s status as a reserve 

currency with foreign demand for US Treasury securities supported by the status of the dollar as a reserve currency, and, 

possibly, by safe-haven flows.

FX Intervention 

and Reserves 

Level

Assessment. The dollar has the status of a global reserve currency. Reserves held by the United States are typically low 

relative to standard metrics. The currency is free floating.

1/ The midpoint is obtained from the CA model gap, applying an estimated semi-elasticity of 0.11. The range stems from the largest absolute 

discrepancy between the CA model and the set of REER models.
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INTERNATIONAL MONETARY FUND 53

Appendix II. Risk Assessment Matrix

Nature of Risk Likelihood of Realization Expected Impact if Risk 

Materializes

Policy Response and 

Recommendations

External Risks

Prolonged 

COVID-19 

outbreak

High High

Containment measures intensify or 

need to be re-introduced. Longer 

containment and uncertainties 

about the intensity and the 

duration of the outbreak reduce 

supply (including through global 

value chains’ disruption) and 

domestic and external demand.

Deteriorating economic 

fundamentals and the associated 

decline in risk appetite result in a 

second wave of financial tightening. 

Rising bankruptcies translate into 

higher unemployment and financial 

institutions’ losses.

Tighter financial conditions would 

result in debt service and 

refinancing difficulties for 

corporates and households. High 

unemployment would result in 

subdued consumption and longerterm damage to participation and 

human capital. Financial institutions’ 

losses would impair the availability 

of credit, with further adverse 

implications for growth.

Fiscal packages should aim at 

minimizing undue balance sheet 

dislocations, preserve employeremployee relations, and support 

household income. Monetary 

policy should remain 

accommodative and prevent an 

excessive tightening of financial 

conditions. Asset purchases and 

the emergency credit facilities 

can be scaled up to address 

market disruptions in credit 

markets.

More 

protectionism

High Medium

Pandemic-prompts protectionist 

actions (e.g., export controls) that 

stay in place and deteriorating 

economic conditions re-ignite 

broader protectionist measures.

Additional tariff and nontariff 

barriers or the threat of new actions 

reduce growth both directly and 

indirectly through confidence effects 

(increasing financial market 

volatility). A retreat from crossborder integration would have 

wide-ranging negative effects on 

trade, capital flows, growth, 

confidence, and global cooperation 

on financial regulation.

Efforts should be made to reverse 

trade restrictions while working 

with partner countries (through 

both bilateral channels and the 

WTO) to address the policies that 

distort trade flows and 

investment decisions. The 

application of countervailing 

duties could potentially escalate 

trade tensions.

Widespread 

social 

discontent and 

political 

instability

High Medium

Social tensions erupt due to 

dissatisfaction with the policy 

response to the epidemic and the 

economic fallout―including massive 

unemployment, higher incidence of 

poverty and shortages of essentials.

Beyond immediate economic 

disruption and adverse confidence 

effects, the resulting pollical 

instability complicates reaching 

political consensus on policies to 

address the pandemic. This could 

exacerbate perceptions of social and 

racial injustice. Public protests may 

also lead to an increased COVID 

infection rate.

Potential measures include 

improving the system of social 

assistance, supporting the 

unemployed, increasing 

resources to healthcare providers, 

increasing health preparedness, 

and ensuring that those that are 

currently without medical 

insurance have access to 

affordable, quality health care.

Oversupply in 

the oil market

High Medium

Supply increases following the 

breakdown of the OPEC+ 

agreement together with demand 

shocks mean that energy prices 

remain at depressed levels. 

Uncertainty about future 

production contribute to continued 

high price volatility.

Low oil prices would lead to 

subdued investment spending 

(structures) in the U.S. energy sector.

Energy firms would face higher 

funding costs, with an increased 

number of bankruptcies.

The Federal Reserve’s Section 

13(3) credit facilities can provide 

liquidity support to cashconstrained, but solvent, energy 

corporates. In addition, fiscal 

measures could be deployed, if 

needed, to facilitate adjustment 

by the industry to lower prices.
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54 INTERNATIONAL MONETARY FUND

Nature of Risk Likelihood of Realization Expected Impact if Risk 

Materializes

Policy Response and 

Recommendations

Domestic Risks

Medium High

Rising 

vulnerabilities 

in the U.S. 

corporate 

sector

Rise in corporate leverage and 

migration of risks to nonbank 

financial institutions in recent years

compounded with ongoing 

economic disruption could result in 

severe financial strain. The rising 

share of risky debt 

markets―leveraged loans, highyield bond and private 

debt―represent an important 

source of vulnerability in a 

downturn.

Following a shock to earnings or 

availability of new financing, highly 

leveraged corporates may 

experience significant stress, leading 

to higher credit spreads, potential

downgrades, inability to refinance 

debt, and defaults. Widespread use 

of weaker covenants in risky debt 

markets could result in larger losses 

if defaults were to materialize.

Emergency liquidity support 

could be extended in case 

financial market dislocations 

become apparent. Stringent 

actions would be needed to 

preserve strong capital buffers, 

including through tighter limits 

on dividend distributions and 

buybacks. Over the mediumterm, macroprudential tools

should be developed and 

deployed to address

vulnerabilities in the nonbank 

sector.

Risks facing 

state and local 

governments

Medium Medium

Public finances of state and local 

government become under stress in 

the presence of a large shock―for 

instance, during the ongoing 

pandemic. Public health care 

interventions rest largely on state 

and local government budgets.

Social assistance and 

unemployment insurance spending 

predominantly takes place at the 

state and local level. Finally, states 

are reliant on sales tax revenues, 

and would be affected significantly 

by lower demand.

Balanced budget requirements

would induce states to cut spending. 

Fiscal tightening by subnational 

governments would constitute an 

important headwind to federal 

efforts to boost activity. Spending 

cuts by state and local governments

will unavoidably reduce social 

assistance, health, and education 

spending (two-thirds of state and 

local outlays), and will be particularly 

incident on low income households 

and the unemployed.

To support state and local 

governments in the provision of 

essential services, and to mitigate 

the effects of procyclical fiscal 

consolidation triggered by state 

and local budget balance rules, a 

large increase in federal transfers 

to states should be appropriated. 

This would also have the 

advantage of avoiding cuts to 

social assistance, healthcare, 

unemployment insurance, and 

education. 

Note: 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 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. Conjectural risks are 

especially relevant over shorter horizons (up to 2 years) given the current baseline. Structural risks (omitted from this streamlined 

version) remain salient over shorter and longer horizons (up to 3 years).
UNITED STATES

INTERNATIONAL MONETARY FUND 55

Appendix III. Public Debt Sustainability Analysis

Due to the unprecedented fiscal response to the COVID-19 outbreak, the U.S. budget deficit has 

increased considerably in 2020, and the U.S. public debt-to-GDP ratio is on an unsustainable path. 

Under the baseline scenario, public debt is projected to rise over the medium term, as age-related 

spending pressures on entitlement programs assert themselves. In addition, tax cuts and discretionary 

spending increases enacted since late-2017 are adding pressure on U.S. public finances. Gross 

financing needs are large, albeit manageable given the global reserve currency status of the U.S. 

dollar. A credible medium-term fiscal adjustment featuring reprioritization of budget programs and 

revenue-gaining tax reform is needed to put public debt on a downward path.

A. Background

1. Background. Significant fiscal consolidation measures were legislated in 2011–13 to tackle 

the high public debt ratio, which had doubled at the federal government level since 2007 due to the 

Great Recession and associated fiscal measures. However, the Bipartisan Budget Acts of 2013, 2015, 

and 2018 reversed some of the cuts scheduled to take place since FY2014, with only partial offsets 

from savings generated through mandatory spending cuts in later years. In addition, the Tax Act of 

2015 and the Tax Cuts and Jobs Act of 2017 extended several tax cuts while introducing new ones. 

Finally, an unprecedented scale of fiscal expansion has been introduced in response to the COVID19 pandemic. As a result, fiscal deficits are projected to rise substantially in the near term and to 

sustain in the medium to long term.

2. Baseline. The staff’s baseline is based on current laws. Under this baseline, public debt is 

projected to rise considerably in 2020 reflecting the automatic and discretionary fiscal responses to 

the current economic downturn but also a smaller economy. Public debt is expected to continue 

rising in the medium term as age-related spending pressures on entitlement programs assert 

themselves. Federal debt held by the public is projected to increase from about 79 percent of GDP 

in FY2019 to around 109 percent of GDP in 2029, with general government gross debt rising from 

about 109 percent of GDP to 148 percent of GDP during this period.

3. Adjustment scenario. The general government primary deficit was 4.1 percent of GDP in 

2019 and is projected at 20.5 percent of GDP in 2020. Reflecting 

the still considerable output gap in staff’s baseline projections 

and the historically low borrowing cost, staff recommends an 

additional 101⁄2 percent of GDP stimulus through 2023 to bring 

the economy to full employment, which would push public debt 

to higher levels. Nevertheless, gradually raising the primary 

general government surplus in the medium-term to around 3⁄4 

percent of GDP (13⁄4percent of GDP for the federal government) 

would be necessary to put the debt-to-GDP ratio firmly on a 

downward path. The target primary surplus would have to be 

larger to bring the debt ratio closer to pre-Great Recession levels by 2034.

100

110

120

130

140

150

160

20182019202020212022202320242025202620272028202920302031203220332034

General government debt

(percent of GDP)

Baseline

Adjustment

Source: IMF staff calculations.
UNITED STATES

56 INTERNATIONAL MONETARY FUND

4. Debt servicing costs. The fiscal projections benefit from the current favorable interest rategrowth differential, reflecting accommodative monetary policy and the safe-haven status of the 

United States. Under staff’s baseline, the effective interest rate is projected to rise gradually from the 

current level of 1.0 percent to 2.0 percent by 2029, which remains considerably below its 2009–17

average level. Thus, real interest rates will act as a debt-reducing flow over the medium-term.

5. Realism. Baseline economic assumptions are generally within the error band observed for all 

countries. The baseline fiscal projections and implied near-term adjustment are outliners compared 

with historical and cross-country experience, but are nevertheless realistic, reflecting the large but 

temporary fiscal expansion in response to the pandemic.

6. Stress tests. The public debt dynamics are sensitive to growth and interest rate 

assumptions. An increase of 100 basis points in the sovereign risk premium would raise the public 

debt ratio to about 156 percent of GDP by 2029, about 8 percentage points of GDP above the 

baseline. Similarly, were real GDP growth to be one standard deviation below the baseline, the 

public debt ratio would increase by about 3 percentage points above the baseline. A scenario 

involving a 1 percentage point of GDP larger fiscal deficit over the next two years would increase 

public debt ratio by about 4 percentage points above the baseline by 2029. A combined macrofiscal shock could raise the public debt ratio to as high as 161 percent of GDP by 2029. An exchange 

rate shock does not have major 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.

7. Mitigating factors. The depth and liquidity of the U.S. Treasury market as well as its safehaven status represent a mitigating factor for the high external and gross financing requirements.

However, given the uncertainties on global capital dynamics over the medium-term, risks to external 

and gross financing requirements remain.
UNITED STATES

INTERNATIONAL MONETARY FUND 57

Appendix III. Figure 1. United States: Public DSA–Risk Assessment

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)

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

4/ An average over the last 3 months, 09-Apr-20 through 08-Jul-20

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

-0.2%

1 2

Not applicable 

for United States

400

600

1 2

113 bp 1 7

2 5

1 2

31%

Bond Spread over 

German Bonds

External Financing 

Requirement 

Annual Change in 

Short-Term Public 

Debt

Public Debt in 

Foreign Currency

(Basis points) 4/ (Percent of GDP) (Percent of total) (Percent of total)

8 0

100

120

140

160

180

2019 2021 2023 2025 2027 2029

Baseline Percentiles: 10th-25th 25th-75th 75th-90th

Symmetric Distribution

8 0

100

120

140

160

180

200

2019 2021 2023 2025 2027 2029

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

26%

Public Debt Held 

by Non-Residents

(Percent of total)
UNITED STATES

58 INTERNATIONAL MONETARY FUND

Appendix III. Figure 2. United States: Public DSA–Realism of Baseline Assumptions

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 observations from 1990 to 2011 for advanced and emerging economies with debt greater than 60 percent of GDP. Percent of sample on vertical axis

Forecast Track Record, versus all countries

Assessing the Realism of Projected Fiscal Adjustment Boom-Bust Analysis

-10

- 8

- 6

- 4

- 2

0

2

4

6

-10

- 8

- 6

- 4

- 2

0

2

4

6

2009 2010 2011 2012 2013 2014 2015 2016 2017

Year 2/

Real GDP Growth

Interquartile range (25-75) Median

-0.36 Has a percentile rank of: 49%

United States median forecast error, 2009-2017:

Distribution of forecast errors: 1 /

(Percent, actual-projection)

-14

-12

-10

- 8

- 6

- 4

- 2

0

2

4

-10

- 8

- 6

- 4

- 2

0

2

4

2009 2010 2011 2012 2013 2014 2015 2016 2017

Year 2/

Primary Balance

Interquartile range (25-75) Median

-0.38 Has a percentile rank of: 54%

United States median forecast error, 2009-2017:

Distribution of forecast errors: 1 /

(Percent of GDP, actual-projection)

- 8

- 6

- 4

- 2

0

2

4

6

8

1 0

- 8

- 6

- 4

- 2

0

2

4

6

2009 2010 2011 2012 2013 2014 2015 2016 2017

Year 2/

Inflation (Deflator)

Interquartile range (25-75) Median

-0.02

Has a percentile rank of: 69%

United States median forecast error, 2009-2017:

(Percent, actual-projection)

Distribution of forecast errors: 1 / pessimistic optimistic

-6

-4

-2

0

2

4

6

8

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

0

2

4

6

8

1 0

1 2

1 4

0

2

4

6

8

1 0

1 2

1 4 Less-4-3-2-1

012345678

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

0

2

4

6

8

1 0

1 2

0

2

4

6

8

1 0

1 2 Less-4-3-2-1

01234567

8

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 59

Appendix III. Figure 3. United States: Public DSA–Baseline Scenario

As of July 08, 2020

2009–2017 2/ 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Sovereign Spreads

Nominal gross public debt 101.3 106.9 108.7 138.2 142.2 143.0 143.9 145.2 146.3 146.8 147.1 147.5 147.8 Spread (bp) 3/ 111

Public gross financing needs 39.7 41.4 41.6 59.1 48.2 42.4 41.8 43.8 42.3 40.3 36.3 29.8 26.8 CDS (bp) 3

Real GDP growth (percent) 1.7 2.9 2.3 -6.6 3.9 3.3 2.3 1.9 1.8 1.7 1.7 1.7 1.7 Ratings Foreign Local

Inflation (GDP deflator, percent) 1.5 2.4 1.7 1.2 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 Moody's Aaa Aaa

Nominal GDP growth (percent) 3.2 5.4 4.1 -5.4 6.1 5.4 4.4 4.0 3.9 4.0 4.0 4.0 4.0 S&Ps AA+ AA+

Effective interest rate (percent) 4/ 2.8 2.7 2.7 1.0 1.6 1.4 1.4 1.5 1.5 1.7 1.8 1.9 2.0 Fitch AAA AAA

2009–2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Cumulative

Change in gross public sector debt 3.6 1.0 1.8 29.5 4.0 0.7 1.0 1.3 1.1 0.5 0.3 0.5 0.3 39.1

Identified debt-creating flows 4.4 0.8 2.6 27.8 3.4 0.1 0.8 1.4 1.5 1.4 1.4 1.7 1.7 41.2

Primary deficit 5.0 3.6 4.1 20.5 9.4 5.5 4.9 4.9 4.9 4.4 4.2 4.4 4.3 67.3

Primary (noninterest) revenue and grants 29.7 29.1 28.9 25.0 27.9 29.8 29.9 29.6 29.9 30.4 30.6 30.6 30.1 293.8

Primary (noninterest) expenditure 34.6 32.7 33.0 45.5 37.3 35.3 34.8 34.5 34.7 34.7 34.8 35.0 34.4 361.0

Automatic debt dynamics 5/ -0.6 -2.7 -1.5 7.3 -5.9 -5.4 -4.1 -3.5 -3.4 -3.0 -2.8 -2.7 -2.6 -26.1

Interest rate/growth differential 6/ -0.6 -2.7 -1.5 7.3 -5.9 -5.4 -4.1 -3.5 -3.4 -3.0 -2.8 -2.7 -2.6 -26.1

Of which: real interest rate 1.1 0.2 0.9 -0.2 -0.8 -1.0 -1.0 -0.9 -0.8 -0.6 -0.4 -0.2 -0.2 -6.1

Of which: real GDP growth -1.7 -2.9 -2.4 7.5 -5.1 -4.5 -3.1 -2.6 -2.6 -2.4 -2.4 -2.4 -2.4 -20.0

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 sweetener) 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/ -0.8 0.1 -0.8 1.7 0.6 0.6 0.2 -0.1 -0.4 -0.9 -1.1 -1.3 -1.4 -2.1

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/

-2.6

(percent of GDP, unless otherwise indicated)

Actual

Contribution to Changes in Public Debt

Actual Projections

Projections

-10

-5

0

5

10

15

20

25

30

35

40

-10

-5

0

5

10

15

20

25

30

35

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Primary deficit Real GDP growth

Real interest rate Exchange rate depreciation

Other debt-creating flows Residual

Projections

Debt-Creating Flows

(percent of GDP)

-40

-20

0

20

40

60

80

cumulative
UNITED STATES

60 INTERNATIONAL MONETARY FUND

Appendix III. Figure 4. United States: Public DSA–Composition of Public Debt and 

Alternative Scenarios

Baseline Historical Constant Primary Balance

Baseline scenario 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Historical scenario 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Real GDP growth -6.6 3.9 3.3 2.3 1.9 1.8 1.7 1.7 1.7 1.7 Real GDP growth -6.6 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3 2.3

Inflation 1.2 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 Inflation 1.2 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1

Primary balance -20.5 -9.4 -5.5 -4.9 -4.9 -4.9 -4.4 -4.2 -4.4 -4.3 Primary balance -20.5 -4.1 -4.1 -4.1 -4.1 -4.1 -4.1 -4.1 -4.1 -4.1

Effective interest rate 1.0 1.6 1.4 1.4 1.5 1.5 1.7 1.8 1.9 2.0 Effective interest rate 1.0 1.6 1.9 2.2 2.4 2.6 2.8 3.0 3.2 3.3

Constant primary balance scenario

Real GDP growth -6.6 3.9 3.3 2.3 1.9 1.8 1.7 1.7 1.7 1.7

Inflation 1.2 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1

Primary balance -20.5 -20.5 -20.5 -20.5 -20.5 -20.5 -20.5 -20.5 -20.5 -20.5

Effective interest rate 1.0 1.6 1.4 1.4 1.4 1.4 1.6 1.8 1.9 2.0

Source: IMF staff

(Percent)

Composition of Public Debt

Alternative Scenarios

Underlying Assumptions

0

20

40

60

80

100

120

140

160

2011 2013 2015 2017 2019 2021 2023 2025 2027 2029

By Maturity 

(Percent of GDP)

Medium and long-term

Short-term

projection

50

75

100

125

150

175

200

225

250

275

300

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Gross Nominal Public Debt

(Percent of GDP)

0

20

40

60

80

100

120

140

160

2011 2013 2015 2017 2019 2021 2023 2025 2027 2029

By Currency

(Percent of GDP)

Local currency-denominated

Foreign currency-denominated

projection

0

10

20

30

40

50

60

70

80

90

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Public Gross Financing Needs

(Percent of GDP)
UNITED STATES

INTERNATIONAL MONETARY FUND 61

Appendix III. Figure 5. United States: Public DSA–Stress Tests

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Primary Balance Shock Real GDP Growth Shock

Real GDP growth -6.6 4.0 3.3 2.3 1.9 1.8 1.7 1.7 1.7 1.7 Real GDP growth -6.6 3.5 2.8 2.3 1.9 1.8 1.7 1.7 1.7 1.7

Inflation 1.2 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 Inflation 1.2 2.0 2.0 2.1 2.1 2.1 2.1 2.1 2.1 2.1

Primary balance -20.5 -10.6 -6.8 -4.9 -4.9 -4.9 -4.4 -4.2 -4.4 -4.3 Primary balance -20.5 -9.6 -5.9 -4.9 -4.9 -4.9 -4.4 -4.2 -4.4 -4.3

Effective interest rate 1.0 1.6 1.5 1.6 1.6 1.6 1.7 1.8 2.0 2.0 Effective interest rate 1.0 1.6 1.4 1.4 1.5 1.5 1.7 1.8 1.9 2.0

Real Interest Rate Shock Real Exchange Rate Shock

Real GDP growth -6.6 3.9 3.3 2.3 1.9 1.8 1.7 1.7 1.7 1.7 Real GDP growth -6.6 3.4 3.0 2.3 1.9 1.8 1.7 1.7 1.7 1.7

Inflation 1.2 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 Inflation 1.2 2.4 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1

Primary balance -20.5 -9.4 -5.5 -4.9 -4.9 -4.9 -4.4 -4.2 -4.4 -4.3 Primary balance -20.5 -10.4 -6.5 -4.9 -4.9 -4.9 -4.4 -4.2 -4.4 -4.3

Effective interest rate 1.0 1.6 1.8 1.9 2.1 2.2 2.4 2.6 2.8 2.8 Effective interest rate 1.0 1.6 1.2 1.2 1.3 1.4 1.6 1.7 1.9 1.9

Combined Shock Contingent Liability Shock

Real GDP growth -6.6 3.4 2.8 2.3 1.9 1.8 1.7 1.7 1.7 1.7 Real GDP growth -6.6 3.5 2.8 2.3 1.9 1.8 1.7 1.7 1.7 1.7

Inflation 1.2 2.0 2.0 2.1 2.1 2.1 2.1 2.1 2.1 2.1 Inflation 1.2 2.0 2.0 2.1 2.1 2.1 2.1 2.1 2.1 2.1

Primary balance -20.5 -11.3 -7.5 -4.9 -4.9 -4.9 -4.4 -4.2 -4.4 -4.3 Primary balance -20.5 -14.4 -5.5 -4.9 -4.9 -4.9 -4.4 -4.2 -4.4 -4.3

Effective interest rate 1.0 1.6 1.8 1.9 2.1 2.2 2.4 2.6 2.8 2.8 Effective interest rate 1.0 1.6 1.6 1.5 1.5 1.6 1.7 1.8 2.0 2.0

Source: IMF staff

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

120

125

130

135

140

145

150

155

160

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Gross Nominal Public Debt

(Percent of GDP)

400

420

440

460

480

500

520

540

560

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Gross Nominal Public Debt

(Percent of Revenue)

26

28

30

32

34

36

38

40

42

44

46

48

50

52

54

56

58

60

62

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Public Gross Financing Needs

(Percent of GDP)

100

110

120

130

140

150

160

170

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Gross Nominal Public Debt

(Percent of GDP)

400

420

440

460

480

500

520

540

560

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Gross Nominal Public Debt

(Percent of Revenue)

0

10

20

30

40

50

60

70

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Public Gross Financing Needs

(Percent of GDP)
UNITED STATES

62 INTERNATIONAL MONETARY FUND

Appendix IV. External Debt Sustainability Analysis

Appendix IV. Table 1. External Debt Sustainability Framework, 2015-2025

(In percent of GDP, unless otherwise indicated)

Projections

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Debt-stabilizing

non-interest 

current account 6/

Baseline: External debt 94.2 92.1 90.7 91.8 88.4 96.2 93.3 91.1 90.0 88.9 87.7 -3.1

Change in external debt 1.1 -2.2 -1.4 1.1 -3.4 7.8 -2.9 -2.2 -1.2 -1.0 -1.2

Identified external debt-creating flows (4+8+9) -0.3 0.4 -2.7 -3.3 -0.3 8.3 -1.5 -0.6 0.3 0.5 0.6

Current account deficit, excluding interest payments 2.2 2.1 1.9 2.2 2.2 2.2 2.1 2.1 2.1 2.0 2.0

Deficit in balance of goods and services 2.7 2.6 2.6 2.9 2.7 2.1 2.1 2.0 1.8 1.8 1.8

Exports 12.5 12.0 12.2 12.3 11.8 10.8 10.9 11.0 11.1 11.2 11.2

Imports 15.2 14.5 14.9 15.2 14.5 12.9 13.0 13.0 13.0 13.0 13.0

Net non-debt creating capital inflows (negative) 1.0 0.7 -0.8 -0.8 1.1 0.0 0.0 0.2 0.2 0.1 0.1

Automatic debt dynamics 1/ -3.6 -2.5 -3.8 -4.7 -3.6 6.1 -3.6 -2.9 -2.0 -1.6 -1.6

Contribution from nominal interest rate 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Contribution from real GDP growth -2.6 -1.5 -2.1 -2.5 -2.1 6.1 -3.6 -2.9 -2.0 -1.6 -1.6

Contribution from price and exchange rate changes 2/ -1.0 -1.0 -1.7 -2.2 -1.6 ... ... ... ... ... ...

Residual, incl. change in gross foreign assets (2-3) 3/ 1.4 -2.5 1.3 4.4 -3.1 -0.5 -1.4 -1.6 -1.5 -1.5 -1.8

External debt-to-exports ratio (in percent) 753.3 770.0 741.6 744.1 749.6 888.8 855.2 827.6 807.3 792.2 779.5

Gross external financing need (in billions of US dollars) 4/ 17825.6 17643.6 17802.7 18732.7 19101.7 19118.6 20427.1 21036.1 21656.8 22244.1 22779.9

in percent of GDP 97.8 94.3 91.2 91.0 89.1 10-Year 10-Year 94.3 95.0 92.9 91.6 90.6 89.3

Scenario with key variables at their historical averages 5/ 96.2 95.1 93.7 92.5 91.2 89.6 -3.7

Historical Standard 

Key Macroeconomic Assumptions Underlying Baseline Average Deviation

Real GDP growth (in percent) 2.9 1.6 2.4 2.9 2.3 2.3 0.5 -6.6 3.9 3.3 2.3 1.9 1.8

GDP deflator in US dollars (change in percent) 1.0 1.0 1.9 2.4 1.7 1.7 0.5 1.2 2.1 2.0 2.0 2.0 2.0

Nominal external interest rate (in percent) 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

Growth of exports (US dollar terms, in percent) -4.7 -1.8 6.7 6.4 -0.4 4.9 6.9 -13.2 6.9 6.3 5.6 4.7 4.1

Growth of imports (US dollar terms, in percent) -3.5 -1.7 6.8 7.8 -0.5 4.9 7.3 -15.8 6.5 5.3 4.4 4.2 4.0

Current account balance, excluding interest payments -2.2 -2.1 -1.9 -2.2 -2.2 -2.3 0.4 -2.2 -2.1 -2.1 -2.1 -2.0 -2.0

Net non-debt creating capital inflows -1.0 -0.7 0.8 0.8 -1.1 0.3 1.0 0.0 0.0 -0.2 -0.2 -0.1 -0.1

1/ Derived as [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, 

e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.

2/ The contribution from price and exchange rate changes is defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. r increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP deflator). 

3/ For projection, line includes the impact of price and exchange rate changes.

4/ Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period. 

5/ The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.

6/ Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels 

of the last projection year.

Actual 

External Debt Sustainability Framework, 2015-2025

(In percent of GDP, unless otherwise indicated)
UNITED STATES

INTERNATIONAL MONETARY FUND 63

Appendix IV. Figure 1. External Debt Sustainability: Bound Tests 1/ 2/

(External debt in percent of GDP)

i-rate 

shock

88

Baseline 88

20

30

40

50

60

70

80

90

100

2015 2017 2019 2021 2023 2025

Interest rate shock (in percent)

External Debt Sustainability: Bound Tests 1/ 2/

(External debt in percent of GDP) 

Sources: International Monetary Fund, Country desk data, and staff estimates.

1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation 

shocks. Figures in the boxes represent average projections for the respective variables in the baseline 

and scenario being presented. Ten-year historical average for the variable is also shown. 

2/ For historical scenarios, the historical averages are calculated over the ten-year period, and the 

information is used to project debt dynamics five years ahead.

3/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current 

account balance.

4/ One-time real depreciation of 30 percent occurs in 2020.

Historical 90

Baseline

88

80

85

90

95

100

20

30

40

50

60

70

80

90

100

2015 2017 2019 2021 2023 2025

Baseline and historical scenarios

CA shock 

89

Baseline 88

20

30

40

50

60

70

80

90

100

2015 2017 2019 2021 2023 2025

Combine

d shock 

89

Baseline 88

20

30

40

50

60

70

80

90

100

2015 2017 2019 2021 2023 2025

Combined shock 3/

30 % 

depreciation

93

Baseline 88

20

30

40

50

60

70

80

90

100

2015 2017 2019 2021 2023 2025

Real depreciation shock 4/

Gross financing need 

under baseline

(right scale)

Non-interest current account shock 

(in percent of GDP)

Growth 

shock 

89

Baseline 88

20

30

40

50

60

70

80

90

100

2015 2017 2019 2021 2023 2025

Baseline:

Scenario:

Historical:

0.0

0.0

0.0

Baseline:

Scenario:

Historical:

2.6

2.4

2.3

Baseline:

Scenario:

Historical:

-2.1

-2.2

-2.3

Growth shock 

(in percent per year)
UNITED STATES

STAFF REPORT FOR THE 2020 ARTICLE IV CONSULTATION—

INFORMATIONAL ANNEX

Prepared By The Western Hemisphere Department (in consultation with 

other departments)

FUND RELATIONS _______________________________________________________________________ 2

STATISTICAL ISSUES ____________________________________________________________________ 4

CONTENTS

July 17, 2020
UNITED STATES

2 INTERNATIONAL MONETARY FUND

FUND RELATIONS

(As of July 9, 2020)

Membership Status: Joined: December 27, 1945; Article VIII

General Resources Account: SDR Million

Percent 

of Quota

Quota 82,994.20 100.00

IMF's Holdings of Currency (Holdings Rate) 62,105.68 74.83

Reserve Tranche Position 20,919.16 25.21

Lending to the Fund

New Arrangements to Borrow 1,346.62

SDR Department: SDR Million

Percent of 

Allocation

Net cumulative allocation 35,315.68 100.00

Holdings 36,749.53 104.06

Outstanding Purchases and Loans: None

Financial Arrangements: None

Projected Payments to Fund 1/

(SDR Million; based on existing use of resources and present holdings of SDRs):

Forthcoming

2020 2021 2022 2023 2024

Principal

Charges/Interest 0.47 0.47 0.47 0.47

Total 0.47 0.47 0.47 0.47

1/ When a member has overdue financial obligations outstanding for more than three months, the 

amount of such arrears will be shown in this section.

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 September 16, 

2019 (EBD/19/37).
UNITED STATES

INTERNATIONAL MONETARY FUND 3

Article IV Consultation. The 2019 Article IV consultation was concluded on June 21, 2019 and the 

Staff Report was published as IMF Country Report No. 19/174. A fiscal Report of Observance of 

Standards and Codes was completed in the context of the 2003 consultation. The 2020 Article IV 

discussions took place by video conference. The Article IV team has also worked closely with the 

FSAP team over the past year. Concluding meetings with Chair Powell of the Board of Governors of 

the Federal Reserve System, and Treasury Secretary Mnuchin occurred on July 15 and July 16, 

respectively. The Managing Director, Ms. Georgieva, the Deputy Managing Director, Mr. Zhang, and 

WHD Director, Mr. Werner, participated in the concluding meetings. The team comprised of Nigel 

Chalk (head), Carlos Caceres, Li Lin, Javier Ochoa, Dan Pan, Suchanan Tambunlertchai, Yannick

Timmer, Anke Weber, and Peter Williams (all WHD), Jean-Marc Fournier and Ian Parry (FAD), Nico 

Valckx (RES), and Diego Cerdeiro (SPR). Mr. Mark Rosen (Executive Director), Mr. Richard Farber and 

Ms. Patricia Pollard (Senior Advisors), and Mr. Neil Shenai (Advisor) attended some of the meetings. 

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. Data provision is adequate for surveillance including its coverage, periodicity, and timeliness. 

The United States adheres to the Special Data Dissemination Standard Plus since 2015 and its 

metadata are posted on the Dissemination Standards Bulletin Board.

Table 1. United States: Common Indicators Required for Surveillance

(As of July 9, 2020)

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

2020 M5 June 26 M M M

Reserve/base money July 1 July 2 W W W

Broad money July 1 July 2 W W W

Central bank balance sheet July 1 July 2 W W W

Consolidated Balance Sheet

of the Banking System

2020 Q1 June 19 Q Q Q

Interest rates3 Same day Same day D D D

Consumer price index 2020 M5 June 10 M M M

Revenue, expenditure, balance and 

composition of financing4—general 

government5

2020 Q1 June 26 Q Q Q

Revenue, expenditure, balance and 

composition of financing4—central 

government

2020 M5 June 10 M M M

Stocks of central government and central 

government-guaranteed debt

2020 M6 July 7 M M M

External current account balance 2020 Q1 June 19 Q Q Q

Exports and imports of goods and 

services

2020 M5 July 2 M M M

GDP/GNP (1

st release) 2020 Q1 June 26 Q M M

Gross External Debt 2019 Q4 April 29 Q Q Q

International Investment Position6 2020 Q1 June 30 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 Staff Representative on the United States 

July 31, 2020 

1. This statement reports on information that has become available since the staff report

(SM/20/119) was issued. It does not alter the thrust of the staff appraisal.

2. On July 14, 2020, the United States adopted measures under “The President’s

Executive Order on Hong Kong Normalization” relating to Hong Kong SAR, China.

These measures have been notified to the Fund on July 21, 2020 pursuant to the procedures

of Decision No. 144-(52/51) on restrictions on payments and transfers for the preservation of

national or international security and, consistent with these procedures, any exchange

restrictions arising from such Executive Order would be unapproved at this time.
Statement by Mr. Rosen, Executive Director,

 Mr. Grohovsky, Advisor and Mr. Shenai, Advisor on United States 

July 31, 2020 

The United States welcomes IMF surveillance over members’ economies and continues to 

encourage IMF staff to present their analysis in a forthright and objective manner. This 

Article IV consultation was unusual given the economic context of the COVID-19 pandemic 

and the related logistical constraints on our engagement. We agreed with staff early on to 

focus this consultation on the impact of COVID-19 on the U.S. economy and the policy 

response. The Article IV report itself, however, is broader and covers a range of issues that 

staff did not raise in the actual consultations, such as those related to social issues, and to 

which our authorities did not have a chance to respond. This dynamic detracts from the 

usefulness and impact of the report.

U.S. Economy and Crisis Response

Heading into 2020, U.S. economic growth was strong and inclusive. The economy, in its 

longest expansion in history, was breaking multi-decade records along many dimensions.

The unemployment rate was at levels not seen since the 1960s. Gains were reversing the 

polarization in economic outcomes seen in previous years. Poverty rates were declining. The 

unemployment rate for African Americans and Hispanic Americans fell to all-time lows.

Weekly earnings for the lowest wage earners were rising strongly and rising faster than for 

those at higher income levels. The progressive nature of the Tax Cut and Jobs Act (TCJA) 

and elimination of deductions primarily used by higher income taxpayers made these 

improvements in the after-tax distribution of wage growth even stronger.

The COVID-19 outbreak was an unforeseen and systemic global health shock, which 

despite the U.S. economy’s enviable initial conditions resulted in previously 

unfathomable adverse economic consequences. Our public health response required mass 

lockdowns and quarantines to limit community spread of the virus and protect vulnerable 

populations, resulting in a sudden stop in economic activity for firms and households.

Contact-intensive sectors and vulnerable populations were particularly hard hit. The 

unemployment rate quickly went from a 50-year low to the highest rate in the post-war 

period, and the economy entered a deep recession.

With the economy facing a sharp contraction, our fiscal and monetary authorities 

responded promptly. Fiscal policy enabled a robust public health response, addressed 

liquidity strains facing vulnerable households and firms, and preserved the web of 

economic relationships in our society. These actions were unprecedentedly strong, broad, 

and fast. As the report notes, our actions provided “essential life support” for the

U.S. economy and American workers and thus cushioned the impact from necessary public 

health measures. Or, as IMF staff put it, “In the face of this unprecedented shock,

U.S. policymakers acted quickly and assertively to protect livelihoods and businesses and to 

mitigate the lasting economic costs of the pandemic.”
Our actions were tailored to lower income individuals and families and were thus highly 

progressive. For instance, our authorities’ signature fiscal program for employees of small 

businesses, the Paycheck Protection Program (PPP), targeted businesses with fewer than 500 

employees. The PPP supported over 80 percent of eligible small business employment, 

covering more than 50 million workers. Despite the surge in unemployment, personal income 

growth was over 10 percent in April 2020, reflecting the scale and breadth of transfer 

payments to households as well as unemployment insurance replacement rates that provided 

funds in excess of their previous income for roughly two-thirds of workers. June retail sales 

increased about 1 percent year-on-year, indicating the countercyclical measures were taking 

effect and encouraging a V-shaped recovery in consumerspending.

The virus caused a violent repricing of risk assets that could have led to a disorderly 

unwinding of asset prices and credit, with serious consequences for the real economy. In 

this context, monetary policy responded forcefully to support economic demand and, 

complemented by emergency lending facilities, restore normal functioning of markets. 

The staff report rightly credits the Federal Reserve’s (Fed) “well-designed” actions with 

restoring market functioning. Indeed, faced with this market turmoil, the Fed quickly cut its 

policy rate to near zero and made clear that rates will remain at this level until there is 

evidence that the economy is on track to meet the Fed’s dual mandate of maximum 

employment and price stability. The Fed broke records on both the quantity and speed of asset 

purchases, which continue at a robust pace today. Over the course of a few months, the Fed 

and Treasury announced and operationalized several emergency lending programs, many 

anchored by equity injections from the Treasury, designed to restore functioning in shortterm funding markets and support private-sector intermediation, including for small and 

midsized businesses. These programs strongly complemented the Fed’s easing and provided 

timely, broad-based support to stressed markets, helping to| preserve the flow of credit to the 

real economy. The corporate credit and municipal lending facilities provided a needed 

backstop, restoring confidence and facilitating, to date, more than a trillion dollars in issuance 

since the end of March.

The Fed also took significant measures to reduce strains in global dollar funding 

markets, with large positive spillovers to the global economy. The Fed adopted large 

bilateral dollar swap lines and launched a repo liquidity facility for foreign central banks with 

adequate collateral, which strongly bolstered international monetary and financial stability.

These actions signal our authorities’ strong commitment to global stability and willingness to 

lead despite challenging circumstances.

We agree with staff that the United States has ample fiscal space to deal with the 

pandemic. Our authorities disagree, however, that they should use available fiscal space 

to “broadly remake” the U.S. economy. Economies are neither made nor remade but 

emerge from millions of citizens’ independent decisions, and dirigisme runs contrary to the 

spirit of free enterprise that undergirds the U.S. economy. We note that last year, staff 

concluded that the U.S. economy exceeded IMF expectations and performed favorably 

relative to other advanced economies with much larger state footprints, but staff now sees the 

need to fundamentally “remake” the economy. Throughout the report, staff give very little 
credit to the dynamism, flexibility, and ingenuity of the U.S. economy, which have driven 

recoveries from previous crises.

Despite the fog of uncertainty caused by the global pandemic, we will use all tools at our 

disposal to support the recovery and facilitate the public health response. Much will 

depend on the trajectory of the virus, which is uncertain. Still, we now believe economic 

activity will recover as states reopen and the virus trajectory improves, but we acknowledge 

considerable uncertainty to the outlook with large downside risks. We think staff is too 

pessimistic in their outlook, possibly because they have assumed limited additional stimulus. 

Given a high degree of uncertainty, we do not place much confidence in point estimates of 

GDP growth. We recognize that we have medium- and long-term challenges, such as

implementing pro-growth policies, closing our infrastructure gap, and addressing the buildup 

of explicit and implicit fiscal liabilities. There remains a robust ongoing debate on how best to 

address these challenges, and we welcome continued staff engagement on issues within their 

domain of expertise.

Trade Policy

U.S. trade policies seek to achieve free and fair trade that will set the stage for longterm economic growth both in the United States and globally. The United States-MexicoCanada Agreement (USCMA), which came into effect earlier this month, is a 21st century 

trade agreement that sets high standards in areas crucial to the region’s continued growth, 

including manufacturing, digital trade, financial services, agriculture, and small business. The 

United States is also currently pursuing trade agreements with the United Kingdom and 

Kenya. We want to build a better multilateral trading system, but reform is needed, 

particularly in the areas of dispute settlement, transparency, and the application of special and 

differential treatment for developing countries. The United States is eager to work with 

likeminded countries to build a global economic system that will lead to higher living 

standards here and around the world.

The currency CVD regulation is one aspect of a comprehensive legal regime of 

antidumping and countervailing duties administered by the Department of Commerce. 

As noted in the final rule modifications, the assessment of undervaluation will take into 

account the impact of government action on the exchange rate, which would not include 

monetary and related credit policy of an independent central bank. Commerce’s proceedings 

provide ample opportunities for parties to comment, and Commerce maintains a public 

record of their proceedings online.

Financial Sector Assessment Program (FSAP)

We welcome and agree with staff’s assessment that the U.S. financial system is generally 

resilient to an array of severe shocks and entered the current crisis stronger due in part 

to our regulatory reforms. We also appreciate staff’s recognition that our financial 

regulatory framework remains advanced in implementing the agreed G-20 financial 

regulatory reforms. These findings are a result of the substantial efforts undertaken by our 
regulatory authorities. We concentrate our FSAP comments on the following areas of 

thematic focus.

Systemic Risk Oversight

As a starting point, and at a critical time for economies and financial systems around the 

world, we welcome staff’s favorable assessment of our systemic risk oversight framework. 

This positive assessment includes the adoption of an activities-based approach and the ability 

of the Financial Stability Oversight Council to identify and respond to potential financial 

stability risks. We also continue to develop and refine macroprudential tools and enhance data 

gathering and analysis to improve systemic risk surveillance in both the banking and nonbank 

sectors.

Banking

Our regulators have strengthened our standards by requiring large, internationally active 

financial institutions to improve the quality and quantity of capital, maintain higher levels of 

liquidity, and adopt robust risk management practices to address banking sector 

vulnerabilities. As a result, U.S. banks – especially Global Systemically Important Financial 

Institutions (G-SIB) – entered the current crisis in a strong position, with substantial capital 

and liquidity buffers.

Our regulators have also made progress in enhancing our world-class recovery and resolution 

planning framework. Firms now reflect resolution planning concerns into day-to-day business 

decisions related to structure, capital and liquidity allocation, and governance. The applicable 

banking agencies have strengthened coordination and supervisory cooperation on resolution 

planning. Revised rules reflect the progress made by both the agencies and firms with respect 

to resolution planning issues.

In recent years, our authorities have reviewed regulation and supervision and have made 

carefully considered changes to maintain safety and soundness while better aligning 

enhanced requirements to the risks that specific banks pose to the financial system. This 

tailoring considers not only asset size but also a number of risk indicators, including crossjurisdictional activity, reliance on short-term wholesale funding, and off-balance sheet 

exposures. With this context, we disagree with staff’s focus on and interpretation of 

standards regarding non-internationally active banks. Subjecting these banks to G-SIB 

requirements would impose restrictions that are disproportionate to their lower risk and 

impede their ability to facilitate credit to the domestic economy.

Capital Markets and Financial Market Infrastructures

We welcome staff’s observation that our supervisory and regulatory frameworks for 

securities markets, commodities markets, and financial market infrastructures are robust.

Since our last FSAP, our regulators have implemented significant reforms to the fund 

management sector, enhanced equity market structure and the regulation of trading, and 
progressed in implementing post-crisis reforms to OTC derivatives markets. Regarding 

financial market infrastructures, our various regulatory agencies maintain a high level of 

cooperation and interaction on risk management standards and resolution planning. 

These cooperative efforts will continue to promote robust risk management practices by 

U.S. central counterparties (CCPs), considering differences between markets.

Insurance

We welcome staff’s finding that supervision of the insurance sector has been significantly 

strengthened as a result of federal and state level efforts. We also appreciate the recognition 

of the International Association of Insurance Supervisors’ work on comparability for the 

aggregation method being developed by the United States and other jurisdictions, and our 

authorities continue to make progress on their respective group capital approaches.

AML/CFT

The United States places a high priority on financial integrity. As staff acknowledged, we 

have strengthened our regime since the last FSAP, especially in the area of beneficial 

ownership identification and verification of customers by financial institutions. We also 

appreciate the recognition that our framework is consistent with the updated FATF standard 

regarding virtual assets and virtual asset service providers.

Future FSAP Reviews

As we performed well in our 2015 FSAP and our financial regulatory framework remains 

advanced, we agreed to a streamlined FSAP review this year without Detailed Assessment 

Reports. We found the less structured format resulted, however, in a review that often went 

beyond international standards and into topics that are not an immediate priority for financial 

stability, including a focus on non-systemically important institutions, fintech, and climaterelated issues. While we are strong supporters of the FSAP program, going forward, we hope 

there is a renewed effort to maintain the focus of the FSAP program on financial stability 

issues, with assessments based on international standards set forth by the relevant standard 

setting bodies. Such standards provide a consensus foundation for assessments and help 

ensure consistency across FSAPs.

In the context of the forthcoming review of the FSAP program, we hope that staff will 

consider alternative approaches to assessing the quality of a country’s stress testing in 

jurisdictions with advanced practices rather than conducting its own, which is naturally based 

on less detailed, incomplete data. Additionally, we would note that the FSAP remains a 

resource-intensive process, and we look forward to proposals from staff on how to streamline 

the exercise to make better use of staff and national governments’ resources. Finally, we 

found a disconnect between the tone of the FSSA, which acknowledged substantial progress 

in reforms and resiliency in our system, and the Article IV, which took a far more negative 

(and in our view, unwarranted) position. This disconnect highlights the continued need to 

better integrate FSAPs with Article IVs in bilateral surveillance.