© 2018 International Monetary Fund

IMF Country Report No. 18/207

UNITED STATES

2018 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 2018 Article IV consultation with 

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

package:

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

June 29, 2018 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 June 29, 2018, following discussions that ended on June 7, 2018, 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 June 18, 2018.

• An Informational Annex prepared by the IMF staff.

• A Statement by the Executive Director for United States.

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.

July 2018
Press Release No. 18/274

FOR IMMEDIATE RELEASE

July 3, 2018

IMF Executive Board Concludes Article IV Consultation with the United States

On June 29, 2018, the Executive Board of the International Monetary Fund (IMF) concluded the 

Article IV consultation with the United States.

1

The near-term outlook for the U.S. economy is one of strong growth and job creation. 

Unemployment is near levels not seen in 50 years, and growth is set to accelerate, aided by a 

fiscal stimulus, a recovery of private investment, and supportive financial conditions. These 

positive outturns have supported, and been reinforced by, a favorable external environment. The 

balance of evidence suggests that the U.S. economy is beyond full employment. 

A slow but steady rise in wage and price inflation is expected as labor and product markets 

tighten. Core PCE inflation is expected to rise modestly above 2 percent by mid-year. Wages 

have been growing broadly in line with (relatively weak) labor productivity growth, leaving unit 

labor costs virtually unchanged over the past 2 years. In the next several months, wages and unit 

labor costs are anticipated to increase at a modest pace. 

Despite good near-term prospects, a number of vulnerabilities are being built-up. The planned 

expansion in the federal deficit at this stage of the cycle could trigger a faster-than-expected rise 

in inflation. That would be accompanied by a more rapid rise in interest rates that could increase 

market volatility both in the U.S. and abroad. There is a risk of a marked reversal of capital 

flows, particularly from emerging markets with weaker macroeconomic fundamentals. The net 

effect of U.S. budget and tax policy choices will exacerbate an already unsustainable upward 

dynamic in the public debt and leave few budget resources available to invest in a range of 

urgently needed supply-side reforms, including infrastructure spending. It will also contribute to 

a rise in global imbalances. These risks are added to by recent actions by the U.S. to impose 

tariffs on imports.

The consultation focused on the policies needed to address these risks, rebuild fiscal space,

 

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

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

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

forms the basis for discussion by the Executive Board.

International Monetary Fund

700 19th Street, NW

Washington, D. C. 20431 USA
2

preserve financial stability, support low- and middle-income households, incentivize work, and 

raise medium-term living standards.

Executive Board Assessment2

Directors welcomed the strong performance of the U.S. economy, with accelerating growth, low 

unemployment, and muted inflation. They also welcomed the favorable near-term outlook and 

the prospect of marking the longest economic expansion in its recorded history. At the same 

time, Directors observed heightened policy uncertainty and medium-term vulnerabilities, 

including rising public debt, trade tensions, and income inequality. They stressed that 

developments and policy actions in the United States have significant implications for the rest of 

the world, and encouraged the authorities to take that consideration into account in their policy 

decisions. 

Directors recognized the objectives of the fiscal strategy and tax reform, with its many positive 

features, in supporting growth and promoting structural changes to unleash the economic 

potential. They observed that, at the current stage of the business cycle, the expansionary fiscal 

policy stance, while boosting U.S. and global output in the near term, could increase risks and 

uncertainties in the medium term. Specifically, Directors cautioned that the procyclicality of the 

budget and tax policy plans would adversely affect the fiscal deficit, debt sustainability, and 

global imbalances. They encouraged the authorities to rebalance fiscal policy, increase the 

revenue-to-GDP ratio through a greater reliance on indirect taxes, and prioritize infrastructure 

spending. Directors also saw scope for targeting personal income tax relief at lower-income 

households, and improving the compliance of tax provisions with the international obligations. 

Directors commended the Federal Reserve for pursuing monetary policy normalization in a 

gradual, data-dependent, and well-communicated manner. They stressed the importance of 

continued adherence to these principles, while being mindful of potential global spillovers as 

monetary policy tightens. Directors concurred that, given the sizable fiscal stimulus, achieving 

the dual mandate of maximum employment and price stability would likely require a faster pace 

of policy rate increases. They pointed to an inflation surprise as an important risk that, if 

realized, could create volatility in financial markets, with negative global consequences.

Directors raised significant concerns over recent trade policy proposals that could have damaging 

effects beyond the U.S. economy, trigger retaliatory responses, and undermine the open, fair, 

rules-based multilateral trading system. Directors urged the authorities to work constructively 

together with their trading partners to reduce trade barriers and resolve trade and investment 

disagreements without resorting to harmful unilateral actions. 

 

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

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

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

Directors noted medium-term risks to financial stability, including those related to high equity 

market valuations, rising leverage, weakened underwriting standards, and cyber risks. Managing 

these risks would require high-quality and independent supervision. Directors stressed the need 

to preserve the current risk-based approach to regulation, supervision, and resolution; strengthen 

the oversight of nonbank financial institutions; and remain committed to agreed international 

standards. They looked forward to further progress in implementing the remaining 

recommendations of the 2015 FSAP.
4

United States: Selected Economic Indicators 1/

(percentage change from previous period, unless otherwise indicated)

Projections

2017 2018 2019 2020 2021 2022 2023

National production and income

Real GDP 2.3 2.9 2.7 1.9 1.7 1.5 1.4

Net exports 1/ -0.2 -0.4 -0.6 -0.5 0.0 -0.1 0.0

Total domestic demand 2.4 3.3 3.2 2.3 1.7 1.6 1.3

Private final consumption 2.8 2.8 2.5 1.9 2.1 2.1 1.9

Public consumption expenditure 0.1 1.3 3.0 1.4 0.1 -0.3 -0.6

Gross fixed domestic investment 3.4 5.7 6.0 4.3 1.3 0.8 0.7

Private fixed investment 4.0 6.3 6.9 4.6 1.0 0.4 0.2

Public fixed investment 0.1 2.7 1.6 2.6 2.8 3.2 3.1

Change in private inventories 1/ -0.1 0.1 0.0 0.1 0.0 0.0 0.0

Nominal GDP 4.1 5.4 5.6 4.0 3.8 3.7 3.5

Personal saving rate (% of disposable income) 3.4 2.5 2.5 2.7 3.0 3.3 3.7

Private investment rate (% of GDP) 16.6 17.2 17.7 18.1 18.0 17.8 17.6

Unemployment and potential output

Unemployment rate 4.4 3.8 3.5 3.4 3.6 3.6 3.8

Labor force participation rate 62.8 62.8 62.6 62.4 62.2 62.0 61.8

Potential GDP 1.8 2.0 2.0 1.9 1.8 1.7 1.7

Output gap (% of potential GDP) 0.3 1.2 1.9 1.9 1.8 1.5 1.2

Inflation

CPI inflation (q4/q4) 2.1 3.2 2.7 2.3 2.2 2.2 2.3

Core CPI Inflation (q4/q4) 1.7 2.4 2.6 2.5 2.3 2.3 2.3

PCE Inflation (q4/q4) 1.7 2.8 2.4 2.0 1.9 1.9 2.0

Core PCE Inflation (q4/q4) 1.5 2.0 2.3 2.2 2.0 2.0 2.0

GDP deflator 1.8 2.4 2.8 2.0 2.1 2.2 2.1

Government finances

Federal government

Federal balance (% of GDP) 2/ -3.5 -4.1 -4.6 -4.5 -4.7 -5.0 -4.8

Federal debt held by the public (% of GDP) 76.5 76.9 77.2 78.5 80.5 82.5 84.6

General government

Primary structural balance (% of potential GDP) -2.7 -3.5 -3.8 -3.3 -3.2 -3.0 -2.3

General government budget balance (% of GDP) 2/ -4.5 -5.3 -5.5 -5.3 -5.4 -5.4 -4.9

General government gross debt (% of GDP)

105.

6

106.

0

106.

5

108.

1

109.

9

111.

6

113.

1

Interest rates (percent; period average)

Fed funds rate 1.0 1.9 3.0 3.6 3.2 2.9 2.9

Three-month Treasury bill rate 0.9 2.0 3.0 3.4 3.0 2.7 2.7

Ten-year government bond rate 2.3 3.0 3.5 3.8 3.7 3.6 3.6

Balance of payments

Current account balance (% of GDP) -2.4 -3.0 -3.2 -3.6 -3.4 -3.2 -3.0

Merchandise trade balance (% of GDP) -4.2 -4.6 -4.7 -5.2 -5.1 -5.1 -5.0

Export volume (NIPA basis, goods) 4.5 5.2 2.7 2.1 3.5 2.9 4.4

Import volume (NIPA basis, goods) 4.3 7.2 7.0 5.9 3.3 3.6 2.9

Net international investment position (% of GDP) -40.5 -41.4 -42.5 -44.4 -46.2 -47.8 -49.2

Saving and investment (% of GDP)

Gross national saving 17.5 17.3 17.6 17.6 17.7 17.8 17.8

General government -1.6 -3.6 -4.1 -4.0 -4.0 -3.7 -3.2

Private 19.0 21.0 21.7 21.6 21.7 21.5 21.1

Personal 2.5 1.9 1.8 2.0 2.2 2.4 2.8

Business 16.5 19.1 19.9 19.6 19.5 19.1 18.3

Gross domestic investment 19.8 20.4 20.8 21.2 21.1 21.0 20.9

Private 16.6 17.2 17.7 18.1 18.0 17.8 17.6

Public 3.2 3.2 3.1 3.1 3.1 3.2 3.2
5

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.
UNITED STATES 

STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION 

KEY ISSUES 

The near-term outlook. Unemployment is low, inflation is well contained, and growth is 

set to accelerate. During the course of this administration, the economy is expected to 

enter the longest expansion in recorded U.S. history. 

Fiscal policy. The combination of revenue losses from the Tax Cuts and Jobs Act and the 

approved increase in spending will create a significant increase in the fiscal deficit in the 

next few years. This will add to an already-unsustainable public debt, contribute to a rise 

in global imbalances, and increase risks of future recession, with possibly negative 

outward spillovers. Further, the expansion in the deficit leaves few budget resources 

available to invest in a range of urgently needed supply-side reforms that could boost 

medium-term growth and raise living standards. 

Monetary policy. Given the planned fiscal stimulus, the Federal Reserve will need to 

raise policy rates at a faster pace to achieve its dual mandate. In executing its monetary 

policy decisions, the Fed’s continued adherence to the principles of data dependence 

and clear communication will be vital. 

Tax Policies. The Tax Cuts and Jobs Act contains many positive changes but these come 

with a high budgetary price tag. Many of the objectives of the Tax Cuts and Jobs Act 

could be better achieved by replacing lost revenues with increases in indirect taxes, 

targeting personal income tax relief solely to those earning close to or below the median 

income, imposing a higher tax rate on unrepatriated profits, reformulating the business 

tax as a cashflow tax, and redesigning the international provisions to impose a minimum 

tax on low-tax jurisdictions and to avoid giving more favorable treatment to exports 

than to imports and domestic sales. 

Trade. The U.S should work constructively with its trading partners to reduce trade 

barriers and to resolve trade and investment disagreements without resorting to the 

imposition of tariff and non-tariff barriers. 

Financial Regulations. Important gains have been made in strengthening the financial

oversight structure since the global financial crisis and proposals to simplify regulations 

for smaller financial institutions represent further improvements. Future changes to 

financial oversight should ensure that the current risk-based approach to regulation, 

supervision and resolution is preserved. 

June 14, 2018 
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2 INTERNATIONAL MONETARY FUND

Outward Spillovers. The net effect of U.S. policy choices—related to the budget and tax 

policy—will provide a near-term boost to trading partner output. However, those same 

policies as well as uncertainties about the trade regime have the potential to both 

increase the range and size of future risks and uncertainties faced by other countries and 

are likely to add to global imbalances. Insofar as the chosen policy mix prompts a 

tightening of global financial conditions, countries with high levels of U.S. dollar debt 

and/or a significant rollover need are likely to come under pressure. There is also a risk 

of a marked reversal of capital flows, particularly from emerging markets with weaker 

macroeconomic fundamentals, which could be disruptive. We are already starting to see 

symptoms of these negative spillover effects in some countries. These risks are added to 

by recent actions by the U.S. to impose tariffs on imports. 
UNITED STATES

INTERNATIONAL MONETARY FUND 3

CONTENTS 

SOLID GROWTH, RISING INFLATION, FULL EMPLOYMENT ____________________________________ 5

THE MACROECONOMIC POLICY MIX ____________________________________________________________ 9

A. Fiscal Policies ____________________________________________________________________________________ 9

B. Monetary Policy _______________________________________________________________________________ 15

RESTORING FISCAL SUSTAINABILITY AND REBUILDING FISCAL SPACE ____________________ 17

THE TAX CUTS AND JOBS ACT _________________________________________________________________ 19

A. Business Tax ___________________________________________________________________________________ 20

B. Personal Income Tax __________________________________________________________________________ 21

C. Pass-Throughs _________________________________________________________________________________ 22

D. International Provisions _______________________________________________________________________ 22

E. International Tax Policy Spillovers _____________________________________________________________ 23

TRADE POLICY __________________________________________________________________________________ 24

FINANCIAL SYSTEM OVERSIGHT ______________________________________________________________ 27

COMPETITION POLICY _________________________________________________________________________ 29

STAFF APPRAISAL ______________________________________________________________________________ 31

BOXES 

1. Determinants of U.S. Wage Inflation ____________________________________________________________ 6

2. Impact of a Nonlinear Phillips Curve __________________________________________________________ 12

3. The Term Structure of Interest Rates and Forecasting Structural Variables ____________________ 13

4. Household Saving, Investment and the Implications for the U.S. Current Account ____________ 14

5. Macro-Structural Policies to Boost Potential Growth __________________________________________ 18

6. Impact of a Successful Renegotiation of NAFTA _______________________________________________ 26

Approved By 

Nigel Chalk (WHD) 

and Tam Bayoumi 

(SPR) 

Discussions took place in New York (April 25-27) and in Washington 

D.C. (May 1-17). Concluding meetings with Chairman Powell and 

Secretary Mnuchin were held on June 6 and June 7, respectively. 

The team comprised Nigel Chalk (Head), Yasser Abdih, Ali Alichi, 

Emanuel Kopp, Daniel Leigh, Suchanan Tambunlertchai (all WHD) 

and Russell Green and Céline Rochon (SPR). Patricia Delgado-Pino, 

Javier Ochoa, and Peter Williams provided valuable assistance. 
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4 INTERNATIONAL MONETARY FUND

FIGURES 

1. Financial System Indicators ______________________________________________________________________ 7 

2. Financial Stability and Growth-At-Risk __________________________________________________________ 8 

TABLES 

1. Selected Economic Indicators _________________________________________________________________ 34

2. Balance of Payments __________________________________________________________________________ 35

3. Federal and General Government Finances ____________________________________________________ 36

4. Core FSIs for Deposit Takers ___________________________________________________________________ 37

ANNEXES 

I. Risk Assessment Matrix ________________________________________________________________________ 38 

II. External Sector Assessment ____________________________________________________________________ 40 

III. Public Debt Sustainability Analysis ____________________________________________________________ 41 

IV. Implementation of FSAP Recommendations _________________________________________________ 48 
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INTERNATIONAL MONETARY FUND 5

SOLID GROWTH, RISING INFLATION, FULL EMPLOYMENT 

1. The near-term outlook for U.S. economy is one of strong growth and job creation. 

Unemployment is already near levels not seen since the late 1960s and growth is set to accelerate, 

aided by a near-term fiscal stimulus, a welcome recovery of private investment, and supportive 

financial conditions. The balance of evidence 

suggests that the U.S. economy is beyond full 

employment. The near-term risks to this outlook 

are balanced but the risks after the next several 

quarters are skewed to the downside. Staff 

continue to estimate potential growth will decline 

over the medium-term to around 13⁄4 percent at a 

3–4 year horizon as demographic pressures lessen 

labor force growth, productivity recovers toward 

long-run historical averages, and the boost to 

investment from the tax reform begins to wane. 

2. After spending much of the past 

decade below 2 percent, core PCE inflation is 

expected to soon rise modestly above that level. 

So far, wages have been growing broadly in line 

with (relatively weak) labor productivity growth, 

leaving unit labor costs virtually unchanged over 

the past 2 years. In the next several months, as 

slack is further diminished, wages and unit labor 

costs are anticipated to increase at a modest pace 

(Box 1). Labor force participation is expected to be 

broadly stable over the near-term as cyclical forces 

offset the downward pull of demographics. Risks to 

the inflation outlook are judged to be broadly balanced. 

3. A robust economy, muted inflation, and high levels of consumer and business 

confidence have supported a run-up in asset prices. The capital position of U.S. banks is strong 

and asset quality appears to be generally good. Credit remains available to both households and 

corporations and the cost of borrowing is relatively low (Figure 1). However, equity market 

valuations are rich, margin debt and various measures of leverage are rising (with increased use of 

financial leverage to boost returns), and the growth of passively managed investment products has 

the potential to amplify the impact of asset price swings on the financial system. There has been 

some deterioration of credit quality in auto and credit card lending as well as for agricultural loans 

(although these assets represent a relatively small share of the market and are unlikely to give rise to 

a systemic vulnerability). In addition, underwriting standards for corporate credit, particularly for 

1

2

3

4

2010 2012 2014 2016 2018

Wage Growth (y/y in percent)

Source: Haver Analytics, Federal Reserve Bank of Atlanta, BLS

Employment Cost Index

Average hourly earnings

Wage growth tracker, 3m average

-2

0

2

4

6

8

1990 1994 1998 2002 2006 2010 2014

Measures of Labor Market Slack

(percent of labor force)

Source: BLS and IMF staff estimates. 

U3 Unemployment gap

U6 Unemployment gap

(including marginally attached workers)

Short-term unemployment gap
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6 INTERNATIONAL MONETARY FUND

Box 1. Determinants of U.S. Wage Inflation1

U.S. wage growth has been subdued since the end of the great recession, despite robust job growth and a 

steady fall in unemployment. Estimates of a wage Phillips curve suggest that this weak wage growth is 

mostly a product of low labor productivity growth. The model fits the data well and its parameters are 

robust to the use of different measures of labor market slack and show no sign of structural instability over 

time. 

The model also allows a decomposition of the 

drivers behind compensation growth and 

shows that, throughout the current recovery, 

there has been diminishing downward pressure 

on compensation growth as labor market slack 

has diminished. However, this has been offset 

by a similarly-sized and contemporaneous 

decline in labor productivity growth. Additional 

factors that have kept the growth rate of real 

compensation below that of labor productivity 

include technological progress—linked to the 

automation of routine tasks—trade 

globalization, and falling unionization rates.2

 

These themes are broadly reinforced by results from a micro-econometric model of wage determination, 

that uses household observations from the Current Population Survey. Controlling for various individual 

characteristics (including education, gender, and profession), an augmented Mincer-type model reveals that 

a higher local rate of unemployment puts 

downward pressure on wages (although this 

relationship appears to have weakened post 

great recession). The household level regressions 

also show that structural changes related to 

technology, globalization, and market 

concentration are also relevant. College-educated 

workers in routinizable jobs face 

greater downward pressure on their wages while 

less-educated workers have experienced the 

most downward wage pressures when they are in 

jobs that are easiest to offshore. Working in 

industries that are more concentrated weighs on 

wages for both college and non-college educated workers.3

1 See Y. Abdih and S. Danninger, 2018 “Understanding U.S. Wage Growth”, IMF Working Paper, WP/18/138. 2 See Y. Abdih and S. Danninger, 2017 “What Explains the Decline in the U.S. Labor Share of Income? An Analysis of State 

and Industry Level Data,” IMF Working Paper WP/17/167. 3 The impact on wages show how much wages fall as a worker goes from the median routinizable and offshorable 

occupation to the 66th percentile or from a 10-percentage point movement of workers to large firms within the same 

industry.

 

-8

-6

-4

-2

0

2

4

Routinization Offshorability Job Concentration in

Large Firms

High School Degree

College Degree or higher

Wage Impact by Skill Level of Structural Factors

(in percent)

Sources: Authors' Estimates
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INTERNATIONAL MONETARY FUND 7

 Figure 1. Financial System Indicators 

Equity markets have fluctuated close to record highs with 

occasional spikes in volatility. Equity market valuations are rich. 

Short-term interest rates have risen and the yield curve 

has flattened. 

Corporate refinancing costs and bond market volatility are 

both low. 

Banks capital buffers are healthy and NPLs are low... ...although credit quality is weakening in some segments. 

Sources: Bank of America Merrill Lynch, Bloomberg, CBOE, Federal Reserve Board, Haver Analytics, IMF, Robert Shiller, S&P Dow Jones Indices LLC..

 

8

16

24

32

1500

1800

2100

2400

2700

2013 2014 2015 2016 2017 2018

Stock Market Gains and Volatility

S&P 500 Index

VIX Index, percent (RHS)

10

15

20

25

30

35

2007 2009 2011 2013 2015 2017

Cylicallly Adjusted Price-to-Earnings Ratio

-1

0

1

2

3

4

5

6

2007 2009 2011 2013 2015 2017

10yr - 2yr spread

10yr bond yield

2yr bond yield

Treasury Yields and Spread (Percent)

0

50

100

150

200

250

0

5

10

15

20

25

2007 2009 2011 2013 2015 2017

Corporate Bond Spreads

IG corp. bond spread, percent

HY corp. bond spread, percent

MOVE Index, basis points (RHS)

12.5

13.0

13.5

14.0

1

2

3

4

2012 2013 2014 2015 2016 2017

Return on equity, percent

Non-performing loans to total loans, percent

Tier-1 capital to risk weighted assets,, percent (RHS)

Banks Solvency, Profitability, and NPLs

0

0.1

0.2

0.3

0.4

0.5

0

1

2

3

4

5

6

2007 2009 2011 2013 2015 2017

Share of Loans & Leases That Are Not Current 

(Percent)

Total loans

and leases

Auto loans (RHS)

C&I Loans &

Leases

Agriculture

loans
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8 INTERNATIONAL MONETARY FUND

higher risk borrowers, has weakened. Strains in the student loan market are becoming apparent 

which could create fiscal costs or knock-on effects to other credit markets. Finally, cyber risks to the 

financial system—linked to the safeguarding of systems and operations as well as the protection of 

customer data—are an ongoing concern. This overall assessment is borne out by the growth-at-risk 

metric of financial stability which finds near-term financial stability risks are broadly similar to those 

at the time of the last Article IV but medium-term risks are elevated (Figure 2). 

Figure 2. Financial Stability and Growth-At-Risk1

Tail risks are broadly unchanged from the time 

of the last Article IV Consultation

Risks are more elevated at a medium-term 

horizon

1 Source: Methodology is based on IMF Global Financial Stability Report, October 2017, Chapter 3; Adrian et al (2018), 

"Vulnerable Growth," American Economic Review (forthcoming) but applied specifically to U.S. financial conditions 

indices. 

2 The lower 5 percent quantile of the conditional forecast density of output growth represents the size of the downside 

risk to growth as a function of domestic financial conditions. 

3 The conditional forecast densities are for time horizons of one and three years based on the last available data.

Authorities’ Views

4. The administration disagreed with the growth outlook that formed the basis of staff’s 

macroeconomic framework. The IMF’s forecasts were regarded as unduly pessimistic, particularly 

when it came to the prospects for long-term growth. The administration’s framework is based on 

average growth of 3 percent over 2018–28. This additional growth, relative to staff forecasts, was a 

product of a higher no policy change baseline that would lead long-run growth to reach around 2.2 

-1

0

1

2

3

4

2010 2012 2014 2016 2018

Growth at Risk Assessment

GDP growth, lagged 1 year

Baseline IMF 

staff forecast

Downside risk to growth 

1 year ahead 2

0

0.1

0.2

0.3

0.4

0.5

0

0.1

0.2

0.3

0.4

0.5

-2 -1 0 1 2 3 4 5 6

Note: Shaded areas denote 5th percentile.

3 year ahead

0

0.1

0.2

0.3

0.4

0.5

One and Three Year Ahead Conditional 

Growth Forecasts 3

1 year ahead

Lower average growth

Greater downside risk
UNITED STATES

INTERNATIONAL MONETARY FUND 9

percent. The administration’s outlook also incorporates long-run growth effects arising from a 

US$1.5 trillion investment in infrastructure (+0.2 percent), the impact of the overhaul of the U.S. tax 

system (+0.3 percent), higher labor force participation, and a continuing process of de-regulation 

that has already eliminated 22 existing regulations for each new one that was created (+0.2 percent). 

THE MACROECONOMIC POLICY MIX 

A. Fiscal Policies 

5. With this strong cyclical position as backdrop, the U.S. has cut taxes and raised both 

defense and non-defense discretionary spending. The resulting demand stimulus is expected to 

raise output, cumulatively, by 11⁄2 percent by 2020, pushing the unemployment rate below 

31⁄2 percent. The tax changes are expected to have modestly positive supply-side effects, largely by 

incentivizing an increase in the capital stock and, in doing so, raising the level of potential GDP (by a 

cumulative 0.3 percent by 2020). Potential growth is expected to return to its longer-term trend (of 

13⁄4 percent) by 2021. The effects of ongoing deregulation could further raise the level of real GDP 

by a modest amount (although it is difficult to quantify such effects based on the available research 

and evidence). 

6. The combined effect of 

the administration’s tax and 

spending policies will cause the 

federal government deficit to 

exceed 4.5 percent of GDP by 

2019. This is nearly double what 

the deficit was just 3 years ago. 

Such a strongly procyclical fiscal 

policy is quite rare in the U.S. 

context and has not been seen 

since the Johnson administration in 

the 1960s. 
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10 INTERNATIONAL MONETARY FUND

7. Such a procyclical fiscal policy will elevate the risks to the U.S. and global economy.

The net effect of this fiscal path will be to provide a near-term boost to the U.S. and to many of its 

trading partners. However, the shift in the US policy mix and uncertainties about the trade regime 

increases the range and size of future risks, both for the U.S. and for the global economy. These risks 

include: 

 Higher Public Debt. The increase in the federal 

deficit will exacerbate an already unsustainable 

upward dynamic in the public debt-to-GDP ratio. 

Even with the planned, modest fiscal 

consolidation that is scheduled to start in 2020, 

the federal debt will continue to climb, exceeding 

90 percent of annual GDP by 2024 (Annex III). 

 A Greater Risk of an Inflation Surprise. As 

discussed above, the tax reform is expected to 

have only modest effects on potential output. As 

such, the planned, expansionary fiscal policy raises the risk of a faster-than-expected rise in 

inflation as capacity constraints become more binding and the economy pushes further through 

full employment. Such a rise in inflationary pressures would lead the Federal Reserve to move at 

a faster pace than is currently priced in by markets, potentially creating volatility and disruptions 

in U.S. asset markets, tightening financial conditions, decompressing term and other risk premia, 

and straining leveraged corporates and households (Boxes 2 and 3). 

 International Spillover Risks. The boost to 

U.S. demand from expansionary fiscal policies 

will generally support near-term growth in a 

range of countries. However, the shift in the 

U.S. policy mix creates important adverse 

risks for non-U.S. corporates, households, and 

sovereigns (especially those that have 

borrowed heavily in U.S. dollars and/or have 

significant rollover needs). It could also 

precipitate a marked reversal of capital flows, 

particularly out of some emerging markets 

with weaker macroeconomic fundamentals, 

which has the potential to add to upward pressure on the U.S. dollar and to worsen global 

imbalances. We are already starting to see symptoms of these spillover effects in some 

countries. 

 The Risk of Future Recession. Current policies build in a gradual fiscal consolidation starting in 

2020, at a time when the monetary tightening cycle is expected to be at its peak. Staff forecasts 

assume a gradual slowdown during this period with growth leveling off at around 11⁄2 percent, 

modestly below the economy’s potential growth rate. However, such a gentle convergence of 

75

80

85

90

95

2017 2019 2021 2023 2025 2027

Federal Debt (percent of GDP, fiscal year)

Source: IMF Staff calculations

Current 

Forecast

October 2017 

Forecast

-0.2

0.0

0.2

0.4

0.6

2017 2019 2021 2023 2025

GDP Spillovers of Fiscal Reforms, 

(percent of GDP)

Source: IMF staff estimates. Differences from baseline due to the Tax 

Cuts and Jobs Act and the 2018 appropriations bill. 

Japan

China

Euro Area
UNITED STATES

INTERNATIONAL MONETARY FUND 11

output to potential from above would be historically unusual and this forecast could prove 

overly optimistic. The output gap could close more abruptly, through a policy-induced recession, 

with negative spillovers for the global economy. 

 Increased Global Imbalances. The U.S. external position in 2017 was moderately weaker than

implied by medium-term fundamentals and desirable policies and the U.S. dollar is judged to be 

moderately overvalued (Annex II). However, especially with the economy already at full 

employment, the fiscal boost to demand in the U.S. is likely to translate into higher import 

growth, an increase in the current account deficit (to around 31⁄2 percent of GDP by 2019–20), 

upward pressure on the dollar, and a worsening of the international investment position. From 

the saving-investment perspective, the U.S. is likely to experience lower household saving, 

higher investment, and a weaker fiscal position (Box 4). The higher U.S. current account deficit is 

expected to be matched by growing current account surpluses in other systemic economies 

(notably Germany, China, and Japan). As a result, global imbalances are expected to rise, with 

the various attendant risks that such imbalances convey (including possibly catalyzing public 

support for increased protectionism). 

Authorities’ Views 

8. The stronger growth path envisaged by the administration will have an important effect on 

the fiscal deficit, lowering it by an average of around 0.25 percent of GDP each year over the next 10 

years. In addition, the administration intends to significantly reduce federal non-defense outlays 

while providing an additional US$200 billion to finance infrastructure spending. Around one-half of 

these expenditure savings would come from a reorganization of the federal government. The 

remainder would accrue mostly from the repeal of the Affordable Care Act, reforms to the welfare 

system and student loans, reductions in wasteful Medicare spending (including for prescription 

drugs), and a phase-down of defense spending currently being undertaken through Overseas 

Contingency Operations funding. These spending cuts, over the ten-year budget horizon, would 

result in a 44 percent real reduction in discretionary, nondefense spending. As a result, mandatory 

spending programs would rise from 68 to 78 percent of noninterest federal spending. On balance, 

the administration’s planned spending reductions, combined with faster growth, would reduce the 

deficit to 1.1 percent of GDP by 2028 and lead the federal debt to peak at 82 percent of GDP in 

2022, slowly declining thereafter. No negative growth effects are anticipated from those various 

reductions in federal programs. Rather, this contractionary fiscal policy is fully consistent with an 

expansionary growth outlook: jobs would be created in the private sector at a pace that more-thanoffsets the economic drag from reductions in inefficient federal spending. 

 
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12 INTERNATIONAL MONETARY FUND

Box 2. Impact of a Nonlinear Phillips Curve1

One of the main risks facing the U.S. economy is 

that inflation could accelerate faster than currently 

expected. Indeed, the relationship between inflation 

and economic slack may be nonlinear, steepening 

as the economy pushes further through full 

employment. 

Simulations of the Fed’s FRB/US and the Fund’s G20 

MOD models illustrate how such a steepening (see 

chart) could affect policy and inflation outcomes. 

The simluations assume a demand impulse of 

1.5 percent––comparable to the impulse from the 

2018–19 fiscal expansion. In FRB/US, the central 

bank is assumed to follow an optimal control policy 

while in G20 MOD the central bank reacts according to a forward-looking Taylor rule. 

The results for the two models are qualitatively similar (charts below show the different paths of inflation 

and policy rates for the linear and nonlinear cases for the two models). Policy rates rise faster and higher 

when the trade-off between slack and inflation is characterized by a nonlinear Phillips Curve. This tightens 

U.S. and global financial conditions relative to the case of a linear Phillips Curve. In the nonlinear case, not 

surprisingly, despite higher policy rates the inflation path is higher than in the linear case. 

 

1 Authored by Susanna Mursula (RES), and Peter Williams (WHD.) 

 

-0.5

0.0

0.5

1.0

1.5

0123456

Years

Core Inflation

(percent, difference from baseline)

Linear (G20 Mod)

Nonlinear (G20 Mod)

Linear (FRB/US)

Nonlinear (FRB/US)

-1.0

0.0

1.0

2.0

3.0

4.0

0123456

Years

Fed Funds Rate

(percent, difference from baseline)

Linear (G20 Mod)

Nonlinear (G20 Mod)

Linear (FRB/US)

Nonlinear (FRB/US)

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

-0.5

0.0

0.5

1.0

1.5

Impact on inflation (percentage points)

-2.0 -1.0 0.0 1.0 2.0

Output gap (percent)

Phillips Curve 

Region where 

nonlinearity is 

pronounced
UNITED STATES

INTERNATIONAL MONETARY FUND 13

Box 3. The Term Structure of Interest Rates and Forecasting Structural Variables1 

In recent years, term premia have been very low and sometimes even negative. This has been due to a 

combination of a healthy macroeconomic environment of low inflation, above trend growth, and, potentially, 

the Federal Reserve’s quantitative easing program. 

A macro-financial term structure model was estimated, which exploits cross-sectional and temporal 

information embedded in the yield curve, as well as cyclical economic variables. Expectations about 

structural factors (e.g., long run inflation expectations or the equilibrium real interest rate) are revised only 

slowly even after large shocks. As a result, most of the variation in bond yields is explained by changes in 

term premia, and to a lesser extent economic conditions, rather than shifting long-run expectations. 

This term structure model can be used to derive market forecasts of the unemployment rate and interest 

rates. Based on the current information embedded in the yield curve, the unemployment rate is projected to 

drop further, to around 31⁄2 percent before trending back to its long-term natural level. The policy rate is 

expected to modestly overshoot its long-run expected value and long-term rates are expected to rise to 

around 3.7 percent. 

1 See E. Kopp and P.D. Williams, 2018 “A Macroeconomic Approach to the Term Premium,” IMF Working Paper, 

WP/18/140. 

3.5

4.0

4.5

5.0

2018 2021 2024 2027

Unemployment Rate Forecasts (percent)

Note: based on the informatrion set at the end of December. 

1.0

2.0

3.0

4.0

2018 2021 2024 2027

Risk-free rate

2yr rate

10yr rate

Interest Rate Forecasts (percent)
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14 INTERNATIONAL MONETARY FUND

Box 4. Household Saving, Investment and the Implications for the U.S. Current Account 

Personal saving. Since the mid-1970s the U.S. has seen 

a secular decline in the household saving rate. This 

downward trend reversed after the financial crisis but 

has, more recently, resumed. To examine whether the 

2008-13 rise in the personal savings rate was due to 

transitory income and wealth shocks or, rather, an 

indication of structural changes in household behavior, a 

time-series vector error correction model was estimated 

for the U.S.1

 Econometric tests of that model find little 

evidence of a post-financial crisis break in the 

underlying elasticities between household consumption, 

disposable income and household net worth. Indeed, 

rolling estimation of the coefficients of the model 

appear remarkably stable over the past 50 years. The 

evidence instead points to the 2008–13 rise in the personal saving rate as being mainly the result of the path 

for disposable income, higher unemployment and the significant fall in wealth that was experienced during 

this period. Conditioning on staff’s medium-term forecasts, the household saving rate is predicted to 

continue falling and eventually revert to the secular downtrend that was in place before 2007. 

Business investment. For much of the current recovery investment growth has been lackluster despite 

record corporate profits, highly supportive financial 

conditions, robust business and consumer sentiment, 

rising equity valuations, and improving labor markets. 

Econometric estimates2

 suggest that weak expected 

demand growth explains most of the sluggish capital 

formation since the financial crisis. The marked decline 

in global oil prices has further weighed on aggregate 

investment from 2014 onwards. With expectations of 

solid future demand growth and a recovery in the oil 

and gas sectors, business investment should continue 

to strengthen. 

Implications for the Current Account. Upward 

revisions to growth projections will support a rise in 

investment-GDP while solid disposable income growth and household wealth gains will lead to a further 

decline in the saving rate. At the same time, the public sector saving-investment balance is expected to 

worsen. Combined, these effects are expected to lead to an increase of around 1 percent of GDP in the U.S. 

current account deficit (bringing it to the highest level seen since the global financial crisis). 

1

 See S. Ouliaris and C. Rochon, “The U.S. Personal Saving Rate”, IMF Working Paper WP/18/128. 

2 See E. Kopp, “Determinants of U.S. Business Investment”, IMF Working Paper, WP/18/139.

7.3

7.4

7.5

7.6

7.7

7.8

7.9

2010 2012 2014 2016

Actual, excluding oil and gas investment

Implied by demand growth acceleration

Source: BEA; IMF staff projections.

Nonresidential Business Investment

Log index

2

4

6

8

10

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017

Personal savings rate, 

percent of disposable income

Source: BEA and IMF staff estimates. 

Savings rate

Model fitted savings rate

Model Forecast
UNITED STATES

INTERNATIONAL MONETARY FUND 15

B. Monetary Policy 

9. In light of the planned fiscal stimulus, 

the Federal Reserve will need to raise policy 

rates at a faster pace to achieve its dual 

mandate. The Federal Reserve should be ready to 

accept some modest, temporary overshooting of its 

medium-term inflation goal (as is indicated by the 

range of FOMC participants’ forecasts). Even then, 

though, policy rates will likely need to rise for a 

time above the long-run neutral rate. The FOMC 

participants’ median forecast suggests that both 

core inflation and the federal funds rate will rise at 

a moderately slower pace than in staff’s forecasts; 

this is consistent with their expectation of growth that is somewhat slower than staff’s forecasts in 

2018-19. Barring a significant negative shock (for example, one that would lower interest rates back 

to the effective lower bound), the normalization of the balance sheet should proceed as outlined in 

the Fed’s policy normalization principles. In executing its monetary policy decisions, the Fed’s 

continued adherence to the principles of data dependence and clear communication will be vital. In 

this regard, scheduling a press conference after every FOMC meeting and publishing a quarterly 

monetary policy report (that details a central economic scenario, and description of risks around that 

baseline, that is endorsed by the FOMC) could help. 

10. For most economies, the near-term net effect of higher U.S. growth and the expected 

increase in U.S. interest rates is expected to be beneficial. The largest positive spillovers are likely 

to accrue to Canada and Mexico, given their close economic ties with the U.S. However, even under 

this baseline, there could still be stress, particularly for leveraged firms and households (both in the 

U.S. and abroad) and/or for indebted sovereigns. Indeed, some of these strains are becoming 

evident in a handful of countries. Presumably, if some of the downside risks outlined above 

materialize, the outward effects would be far more damaging for a broader set of countries. 

Authorities’ Views

11. The risks to the economic outlook and to inflation prospects were assessed to be roughly 

balanced and further, gradual increases in the federal funds rate would be consistent with a solid 

expansion of economic activity, strong labor market conditions, and inflation near the FOMC’s 2 

percent medium term objective. At this stage, it looked likely that inflation would modestly 

overshoot 2 percent for a time but it was also likely that some of the recent acceleration in inflation 

represented transitory price changes (e.g. in health care and financial services). This path for inflation 

remains consistent with the FOMC’s symmetric inflation objective and could even help anchor 

longer-run inflation expectations. There was little empirical evidence to suggest that the Phillips 

Curve was possibly steeper at lower levels of unemployment. However, intensified upward wage and 

price pressures, driven by supply constraints, was recognized as an important risk. Regardless, the 

1

2

3

4

2018 2019 2020 2021 2022 2023 Long

Run

IMF

(current forecast)

Policy Rate, (percent)

Sources: Federal Reserve and IMF staff estimates. 

FOMC median "dot"

(June 2018)

IMF

(Fall 2017 WEO)
UNITED STATES

16 INTERNATIONAL MONETARY FUND

path for the federal funds rate will continue to depend on the FOMC’s assessment of the economic 

outlook, as informed by incoming data. 

Economic Forecast (percent)

2017 2018 2019 2020 2021

Longer 

Run

IMF 2.9 2.7 1.9 1.7 1.7

CBO 3.0 2.9 2.0 1.5 1.8

Consensus 2.9 2.6 ... ... ...

IMF 3.0 2.4 1.5 1.9 1.8

FOMC 2.8 2.4 2.0 ... 1.8

IMF 3.5 3.5 3.4 3.5 4.3

CBO 3.5 3.3 3.8 4.4 4.6

Consensus 3.7 3.6 ... ... ...

FOMC 3.6 3.5 3.5 ... 4.5

IMF 2.8 2.4 2.0 1.9 2.0

CBO 1.8 2.0 2.1 2.1 2.0

Consensus 2.1 2.3 ... ... ...

FOMC 2.1 2.1 2.1 ... 2.0

IMF 2.0 2.3 2.2 2.0 2.0

CBO 1.9 2.1 2.2 2.2 2.0

FOMC 2.0 2.1 2.1 ... ...

IMF 0.3 1.2 1.9 1.9 1.8 ...

CBO -0.7 0.4 1.2 1.0 0.5 ...

IMF 2.6 3.6 3.4 2.9 2.9

FOMC 2.4 3.1 3.4 ... 2.9

IMF -4.1 -4.6 -4.5 -4.7 ...

CBO -4.0 -4.6 -4.6 -4.9 ...

IMF -2.5 -2.8 -2.4 -2.4 ...

CBO -2.4 -2.9 -2.4 -2.4 ...

IMF 76.9 77.2 78.5 80.5 ...

CBO 78.0 79.3 80.9 83.1 ...

Projections

Real GDP Growth (annual average)

Real GDP Growth (Q4/Q4)

2.6

2.3

1.7

4.1

Unemployment Rate (eop)

 PCE Inflation (Q4/Q4)

Core PCE Inflation (Q4/Q4)

1.5

Output Gap (percent of potential, annual average)

Sources: CBO projections are from the Budget and Economic Outlook 

April 2018; FOMC projections are from the June 2018 Summary of 

Economic Projections; Consensus is for the Blue Chip Consensus, May 

2018

Budget balance (federal government, percent of GDP)

Primary budget balance (federal government, percent of GDP)

Debt held by the public (federal government, percent of GDP)

76.5

-2.1

-3.5

Federal Funds Rate (eop)

1.5
UNITED STATES

INTERNATIONAL MONETARY FUND 17

RESTORING FISCAL SUSTAINABILITY AND REBUILDING 

FISCAL SPACE 

12. Measures should be taken to raise the 

primary fiscal surplus of the general 

government to around 11⁄4 percent of GDP (11⁄2 

percent of GDP for the federal government) to 

put the debt-to-GDP ratio on a downward path. 

The U.S. has some fiscal space but should not use it 

at this stage in the cycle. Rather policies should be 

designed to: 

 Reform social security including by raising the 

income ceiling for contributions, indexing 

benefits to chained inflation, and accelerating 

the planned increase in the retirement age. 

 Contain healthcare cost inflation through technological solutions that increase efficiency, 

greater cost sharing with beneficiaries, and changing mechanisms for remunerating healthcare 

providers.

 Increase the federal revenue-GDP ratio by putting in place a broad-based carbon tax, a 

federal consumption tax, and a higher federal gas tax. 

Such a set of policies would both allow the public debt-to-GDP ratio to fall and create the fiscal 

space for policies to support low- and middle-income families, promote investments in human and 

physical capital, and increase medium-term growth. Over the near term, the impact from a gradual 

(but steady) tightening in the fiscal position is likely to restrain growth to levels that are below staff’s 

baseline forecast. However, if supply side policies are successful, potential and actual growth rates 

would be higher over the medium-term. 

13. In the absence of a change in policy that reverses the planned increase in the fiscal 

deficit, the resource costs of the tax reform, approved spending increases, and the fiscal 

pressures arising from population aging will preclude the federal government from having 

the fiscal space to undertake a range of policies that are needed to sustainably raise potential 

growth. Such policies cut across a range of areas and have been identified and extensively 

discussed in previous Article IV consultations. As just one concrete example, and in addition to those 

policies summarized in Box 5, there is broad agreement within the U.S. that increasing federal 

spending on infrastructure is urgently needed. Fiscal space for such spending will need to be 

created. However, the planned expansion in the federal deficit described above will leave few 

budget resources available for infrastructure spending. Indeed, the recently approved budget bill for 

2018-19 provides little incremental funding for infrastructure (despite the US$200 billion in 
UNITED STATES

18 INTERNATIONAL MONETARY FUND

Box 5. Macro-Structural Policies to Boost Potential Growth1

Tackling Poverty 

 Expand the eligibility for, and increase the generosity of, the Earned Income Tax Credit (EITC) to 

support lower income households and incentivize work. To lessen the risk an expanded EITC leads to a 

decline in pre-tax wages at the bottom of the income distribution, combine the change in the EITC with an 

increase in the federal minimum wage. 

 Upgrade federal and state social assistance to simplify and unify the multitude of programs, increase 

the generosity of direct transfer programs, avoid “cliffs” in social benefits by smoothing the phase-out for 

those near the poverty line, and better target federal payments to program outcomes. 

Improving Education 

 Better prioritize spending on early childhood education and institute universal pre-K. 

 Provide greater support for science, technology, engineering and mathematics programs. 

 Redesign the funding model for public schools to reduce funding differences across districts and 

provide more resources to schools with a high concentration of students from low-income households. 

 Expand apprenticeship and vocational programs to offer attractive, non-college career paths to workers 

of all ages. 

 To improve the current relatively unimpressive levels of college degree attainment, the U.S. should 

focus more on preparing students for college and fostering retention once they are enrolled. 

 Explore alternative federal financing options for tertiary education (including income contingent 

repayment loans and an expansion in needs-based grant programs) to increase access for students from 

low- and middle-income households. 

Providing Family Friendly Benefits and Expanding the Labor Force 

 Institute paid family leave. 

 Provide means-tested assistance for child and dependent care expenses. 

 Undertake a skills-based immigration reform. 

Better Healthcare 

 Protect the gains in health care coverage that have been achieved since the financial crisis, particularly 

for those at the lower end of the income distribution. Doing so will have positive implications for well-being, 

productivity and labor force participation. 

 Drawing on existing pilot programs, and the deployment of new technologies, provide incentives to 

increase efficiency and pricing transparency from healthcare providers with a goal of containing inflation in 

healthcare services. 

 Assess the scope to apply antitrust or other solutions to cases where the market concentration of 

health providers or insurers has increased and where premiums for non-group policies have been rising 

rapidly. 

1 See 2017 U.S. Article IV Staff Report, IMF Country Report 17/239 for further details. 
UNITED STATES

INTERNATIONAL MONETARY FUND 19

appropriations requested by the administration). Even with the administration’s positive efforts to 

streamline the regulatory structure, assess the viability of user fees, expand public-private 

partnerships and tax-preferred private activity bonds, improving U.S. infrastructure will need to be 

backed by a sustained increase in federal spending. This increase in spending should be structured 

around competitive programs geared toward high priority projects rather than formula-based, 

automatic allocations. However, any increase in federal outlays on infrastructure would need to be 

designed within an overall spending envelope that allows for a steady reduction in the federal deficit 

and debt over the next several years. 

Authorities’ Views

14. There is no intention to raise taxes and the administration is committed to protecting 

those budget programs (like social security and Medicare) that retirees rely upon. Both federal 

consumption taxes and carbon taxes were improbable sources of revenue. There would be efforts, 

however, to realize savings by negotiating better deals and leveraging the U.S. Government’s buying 

power (e.g. for prescription drugs). Maintaining health care cost inflation below the nominal rate of 

growth of the economy was seen as a priority for the administration. The administration’s view is 

that tax cuts and deregulation would unleash the American economy and the remaining fiscal 

adjustment would be undertaken through spending restraint. This would be achieved through an 

upgrading of information technology (to deliver better results and increase accountability), 

modernization of the federal workforce (including through the reskilling of existing workers, 

facilitating the removal of workers failing to meet performance standards, and making managers 

more nimble and agile), and the elimination of low-value functions of the federal government. There 

was agreement that there is an urgent need to address infrastructure needs through a combination 

of US$200 billion in direct federal funding over the next 10 years which would catalyze US$1.5 

trillion in infrastructure spending by state, local and private providers. An expansion of taxadvantaged Private Activity Bonds would provide competitive financing for such projects. Finally, 

efforts to streamline permitting decisions and the disposal of land and properties that are no longer 

needed by the federal government are expected to encourage new infrastructure projects, generate 

revenue to finance such activities, and spur local economic development. 

THE TAX CUTS AND JOBS ACT 

15. There is broad agreement on the objectives underpinning the Tax Cuts and Jobs Act 

(TCJA). Specifically, as pointed out by the administration, the U.S. tax code has long needed an 

overhaul in order to simplify the system; make the U.S. business tax competitive; provide tax relief to 

lower- and middle-income Americans; lower statutory rates and broaden tax bases; increase equity 

(including by taxing households at similar levels of income in a uniform way, independent of their 

type of business or source of income); not provide income tax cuts for the wealthy; and to achieve 

all of these objectives without adding to the fiscal deficit. 
UNITED STATES

20 INTERNATIONAL MONETARY FUND

16. In this regard, the Act contains many positive steps. These include efforts to reduce the 

scope of personal income tax deductions, lower marginal tax rates, create incentives for private 

investment, tackle base erosion and cross-border profit shifting, and reduce debt bias. 

17. However, the approved tax policy changes have a high budgetary cost at a time 

when the federal budget is in urgent need of revenues. In addition, the temporary nature of 

many provisions creates significant tax policy 

uncertainty and instability in the tax system. As 

discussed above, the authorities should seek to prevent 

the tax policy changes from adding to the fiscal deficit 

by increasing the revenue-to-GDP ratio (largely through 

a greater reliance on indirect taxes). 

18. There remains scope to strengthen various 

provisions of the code to better achieve the 

objectives outlined above:

A. Business Tax 

19. The reduction in the statutory business tax 

rate, to around the OECD average, and the 

expensing of certain types of capital spending are 

positive changes that, taken in isolation, will help 

incentivize investment, and lessen the incentive for 

base erosion and profit shifting. The Act, though, 

continues to allow for the deductibility of interest with a 

cap as a share of earnings. Such deductibility for debtfinanced investment spending that can be immediately 

expensed conveys an overly generous benefit and 

continues to incentivize debt financing. In addition, the 

cap introduces a procyclical distortion into the system 

(because the cap becomes more binding when earnings 

weaken which, in a downside scenario, could 

exacerbate strains and bankruptcies in the corporate 

sector). Further, the temporary nature of the 

expensing provision distorts the timing of firms’ 

investment decisions (to favor investing before the 

provisions expire). To further increase the 

competitiveness of the U.S. business tax and to further 

lessen the distortion it creates in investment decisions, 

 

0 10 20 30

Switzerland

Hungary

Ireland

Canada

Germany

Czech Republic

Poland

Slovenia

United Kingdom

Luxembourg

Estonia

Finland

Iceland

Latvia

Slovak Republic

United States

Denmark

Sweden

Turkey

Israel

Norway

Japan

Italy

Austria

Chile

Korea

Netherlands

Spain

New Zealand

Belgium

Greece

Australia

Mexico

Portugal

France

Statutory Central Government 

Corporate Tax Rate (percent)

Source: Organization for Economic Cooperation and

Development.

100

150

200

250

2016Q1 2016Q2 2017Q1 2017Q2 2018Q1 2018Q2

Announced Equity Buybacks*

(billions of U.S. dollars)

* 2018Q2 is through May 7.

Source: Bloomberg.
UNITED STATES

INTERNATIONAL MONETARY FUND 21

it would be preferable to go further in the direction of the TCJA and move the U.S. to a cashflow tax, 

permanently allowing for the expensing of all capital outlays and fully eliminating the deduction for 

interest spending on newly-contracted debt. The decision to levy a very low, one-time tax rate on 

the stock of unrepatriated profits conveys significant benefits to taxpayers that chose not to 

repatriate profits. Finally, the preliminary evidence is that, following the tax reform, U.S. 

multinationals have significantly increased their plans for share buybacks and dividend payouts. 

B. Personal Income Tax 

20. The changes to the personal income tax have many positive aspects. These include the 

elimination of most itemized deductions, a higher standard deduction and the elimination of 

personal exemptions, limits on the deduction for state and local taxes, and a lower cap on the 

mortgage interest deduction. Most U.S. households will see a reduction in their income tax in the 

next few years. However, the net effect of the tax policy changes—which also include reductions in 

the burden of the alternative minimum tax 

and a reduction in the marginal rate for 

higher income households—provides 

greater benefits to those in the upper 

deciles of the income distribution. 

21. As a result, these changes are 

likely to exacerbate income polarization. 

They also will do little to address the 

pressing needs of the working poor, both of 

which are important, macroeconomically 

relevant issues that have been raised in past 

Article IV consultations (see 

2016 Article IV and 2017 Article IV). Indeed, 

the relative burden on low- and middleincome households rises as various 

provisions expire. To better target tax relief 

to lower- and middle-income Americans 

and prevent reductions in the income tax for 

the wealthy, it would be preferable to recalibrate the rate structure so as to concentrate tax relief to 

those earning close to or below the median income (with tax relief phasing out for those earning 

above 150 percent of the median income––the top third of the income distribution). As part of this 

change, and in line with past advice, the coverage and generosity of the Earned Income Tax Credit 

could be increased and there is space to eliminate loopholes and special regimes for high income 

earners, including the carried interest provision. The combination of these proposed changes would 

support low- and middle-income households, strengthen private sector demand, incentivize work, 

and raise living standards. 
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22 INTERNATIONAL MONETARY FUND

C. Pass-Throughs 

22. Allowing for a 20 percent deduction for pass-through income creates an important 

mechanism for high income individuals to reduce their tax obligations by recharacterizing 

personal income as pass-through income. With around one half of the U.S. corporate tax base 

constituted as pass-throughs, this is counter to the authorities’ objectives of increasing equity—

especially between those taxpayers that can, and cannot, arrange their activities to take advantage 

of the deduction—and simplifying the system. The TCJA does contain guardrails that limit the use of 

the pass-through deduction. However, it is unclear how effective those provisions will be in 

preventing an erosion of the personal income tax base from high income individuals or from 

stopping pass-throughs from redesigning their operations to maximize their ability to qualify for the 

20 percent deduction. 

D. International Provisions 

23. The TCJA has the potential to significantly reshape the international tax system. The 

U.S. has abandoned its system of global taxation with deferral and moved to a modified territorial 

system that embeds anti-avoidance measures and a minimum tax on the offshore profits of U.S. 

multinationals. Staff had previously recommended moving to a territorial system, with a minimum 

tax on offshore profits, as an important step to simplify the corporate tax system while helping to 

contain global tax competition and profit-shifting. However, there is scope to strengthen the design 

of various of the international provisions in the Act: 

 To better curtail global tax competition, the minimum tax (the Global Intangible Low Taxed 

Income, GILTI) provision should be imposed on a country-by-country basis so that it falls on all 

profits earned in low tax jurisdictions (rather than on the average global profits of multinationals 

that are in excess of a deemed 10 percent return on tangible assets). As it stands, the link of this 

provision to worldwide profits and to tangible capital will create complex and distortionary 

effects on firm’s global investment decisions and may dilute its effectiveness in dis-incentivizing 

cross-border tax competition. 

 The lower tax rate for exporters (the Foreign Derived Intangible Income, FDII) should be 

eliminated to avoid the economic distortion that arises from providing a more favorable tax 

treatment for exports than for domestic sales. This would provide more of a level playing field 

for global investment decisions. 

 The Base Erosion Anti-Abuse Tax (BEAT) will likely serve its intended function of helping to 

curtail various base erosion and profit shifting behaviors, but it is also likely to be punitive for a 

range of legitimate commercial activities that are not linked to tax avoidance. The provision also 

creates a broad-ranging preference for domestic over foreign production and creates new 

incentives for companies to rearrange their operations to avoid application of the BEAT. These 

shortcomings would be mitigated, and international tax planning strategies would be better 
UNITED STATES

INTERNATIONAL MONETARY FUND 23

contained, by only applying this provision to those transactions that are designed to transfer 

profits to related parties that are located in low tax jurisdictions. 

E. International Tax Policy Spillovers 

24. The far-reaching and innovative features of the TCJA create a complex array of both 

positive and negative spillovers for other countries, which stakeholders are still analyzing. The 

move to territoriality heightens the likelihood of profits and investments being shifted from the U.S. 

into lower tax jurisdictions (there is evidence that a similar move in the U.K. indeed increased 

outward investment to lower tax jurisdictions). However, the marked reduction in the statutory rate 

and preferential treatment for some exporters in the U.S. are important countervailing forces, and 

could encourage other jurisdictions to lower their tax rates, particularly when they are clearly above 

the new U.S. statutory rate. One potential effect of the innovative GILTI and FDII provisions is to 

potentially encourage the location of tangible investments abroad (especially in cases where the 

firm’s effective foreign tax rate is low). This tendency will be strengthened for those projects that 

generate sizable commercial payments with related parties in other jurisdictions (since these may 

become subject to the BEAT if such intercorporate transactions are paid from a U.S. entity). At the 

same time, the GILTI provision is likely to discourage offshore jurisdictions from competing for U.S. 

investments by reducing their tax rate below 13.125 percent. It may even provide a floor on 

competition in the statutory rate, to the benefit of other relatively high tax rate jurisdictions. 

Furthermore, the reform could encourage other jurisdictions to consider ways, other than rate 

reductions, to compete for tangible investment. These could include faster depreciation rates (or 

even expensing), consideration of their own version of the BEAT, or other measures designed to 

achieve a similar, broad anti-profit shifting goal. The final impact on other countries (some of which 

have expressed WTO- and treaty-related concerns) is likely to vary considerably according to their 

circumstances. 

Authorities’ Views

25. The administration regards the provisions of the Tax Cuts and Jobs Act to be a historic 

achievement that will spur economic growth while providing middle-class families with a significant 

tax cut. Treasury modeled the revenue impact of higher growth effects compared to previous 

projections using the Administration’s projections of approximately a 2.9 percent real GDP growth 

rate over 10 years contained in the Administration’s Fiscal Year 2018 Budget. The administration’s 

policies, relative to the baseline, would add around 0.7 percent to the annual real GDP growth rate 

over 10 years, with approximately half of this increase in growth coming from changes in corporate 

taxation. Further growth effects would arise from changes to pass-through taxation and the 

individual income tax as well as regulatory reform, infrastructure development and welfare reform. 

Expensing is regarded as a powerful tool to “front-load” the growth effects from the tax plan. This 

higher growth was estimated to generate enough revenue to cover the static cost of the tax bill. 

They also noted that, just in the few weeks and months after signing the Act into law, over six million 

American workers were given special bonuses, wage increases or other benefits. The authorities 

regarded that the new international provisions of the business tax system would encourage 
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24 INTERNATIONAL MONETARY FUND

investment and jobs to return to the U.S. from abroad as well as prevent a “race to the bottom” by 

no longer encouraging companies to set up offshore entities in low tax jurisdictions. 

TRADE POLICY 

26. The U.S. has traditionally maintained a very open trade regime. Over the years, this has 

supported U.S. growth and job creation and helped raise living standards. U.S. leadership on trade 

has encouraged a range of countries to open their own trade regime, removing tariff and nontariff 

barriers. However, public concern over the side-effects of open trade has increased. It is in this 

context that various steps have been taken, or have been proposed, by the administration to impose 

new tariffs or otherwise restrict imports into the U.S. 

27. As a prelude to these actions, the administration has undertaken several trade policy 

actions and reviews. These include an investigation into whether aluminum and steel imports 

“threaten to impair the national security” under Section 232 of the 1962 Trade Expansion Act, an 

investigation into whether China’s actions, policies, and practices (related to technology transfer, 

intellectual property, and innovation) are unreasonable or discriminatory and burden or restrict U.S. 

commerce under Section 301 of the 1974 Trade Act, a review of “Buy American” provisions in 

government procurement, and a study to assess the causes underpinning the U.S. trade deficit 

(specifically for those trading partners that have a significant bilateral deficit in goods trade with the 

U.S.) which was completed but has not been made publicly available. The U.S. also opened up a 

renegotiation of the North American Free Trade Arrangement (Box 6) and of the free trade 

agreement with South Korea. 

28. In the past few months, the U.S. has imposed tariffs on a variety of imports. Based on 

section 232 of the Trade Expansion Act, the administration has concluded that steel and aluminum 

imports threaten to impair national security and has imposed a tariff of 25 and 10 percent on steel 

and aluminum, respectively (with exemptions for Australia and Argentina (both metals) and Brazil 

and South Korea (steel only)). Safeguard tariffs have also been imposed under Section 201 of the 

1974 Trade Act on washing machines and solar panels based on a finding that imports of these 

goods have seriously injured U.S. producers. The section 301 investigation has concluded that China 

is pursuing unfair trade practices (related to the forced transfer of U.S. technology and intellectual 

property), and tariffs have been proposed on around US$150 billion of imports from China. The U.S. 

has filed a request for consultations with China at the WTO to address China’s technology licensing 

requirements. China has responded to these U.S. actions by proposing a list of tariffs on 

US$50 billion of U.S. products and requesting dispute consultations with the U.S. at the WTO. Most 

recently, the U.S. has temporarily put on hold the proposed tariffs on China, pending further 

discussions, but has initiated a section 232 investigation of imports of automobiles and automotive 

parts. 

29. There is broad agreement that the global economy needs to be able to rely on an 

open, fair, and rules-based international trade system. These measures, though, are likely to 
UNITED STATES

INTERNATIONAL MONETARY FUND 25

move the globe further away from such a system, with adverse effects for both the U.S. economy 

and for trading partners. Specifically, they risk: 

 Catalyzing a cycle of retaliatory trade responses from others, creating important uncertainties 

that are likely to discourage investment at home and abroad. 

 Expanding the circumstances where countries cite national security motivations to justify broadbased import restrictions. This has the potential to undermine the rules-based global trading 

system and lead to heightened restrictions on trade in goods and services. 

 Interrupting global and regional supply chains in ways that are likely to be damaging to a range 

of countries, and to U.S. multinational companies, that are reliant on these supply chains. 

 Impacting a range of countries, particularly some of the more vulnerable emerging and 

developing economies, through increased financial market or commodity price volatility 

associated with these trade actions. 

30. The U.S should work constructively with its trading partners to reduce trade barriers 

and to resolve trade and investment disagreements without resorting to tariff and non-tariff 

barriers. In such discussions, specific levels of the bilateral trade balance between the U.S. and other 

countries should not be viewed as either an anchor or a target (given that they are determined by a 

range of macroeconomic and structural forces and that targeting them is unlikely to reduce a 

country’s overall trade deficit). Rather, the goal should be to pursue the important gains that are to 

be had, for all parties, from strengthening the rules-based, multilateral trading system and from 

securing more ambitious bilateral and plurilateral agreements on trade and investment. The size, 

diversity, and dynamism of the U.S. economy leaves it especially well poised to benefit from such 

trade and investment liberalization. However, it is possible there will be important effects on both 

labor markets and the income distribution from greater trade integration. The consequences for 

trade-affected U.S. workers should not be ignored and policy efforts should focus on mitigating the 

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

through a broader deployment of the existing trade adjustment assistance program). 

Authorities’ Views

31. The administration regards recent steps to impose tariffs as a step toward creating the 

leverage needed to achieve more free, fair and reciprocal trade. They regarded that most U.S. 

trading partners maintain regimes that create explicit and implicit barriers to U.S. exports and that 

there was a need to rebalance trade relationships, something that had been neglected by past 

administrations. They regarded the Chinese economy as a non-market system that was deeply 

distorted by pervasive subsidies, preferential industrial policies that unfairly bolster Chinese firms, 

obstacles to imports from the U.S., and various forms of discrimination against foreign firms 

(including forced technology transfer, disregard for intellectual property rights, and cyber theft). For 

NAFTA, their goal is to modernize the agreement and rebalance trade, particularly with Mexico and 

for the auto sector and were hopeful an agreement could be reached later this year. The U.S. was 

looking to change rules of origin so as to increase U.S. and North American content in the 
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26 INTERNATIONAL MONETARY FUND

production chain; to require stronger labor standards (including fair collective bargaining); and to 

incorporate strong currency provisions into the final agreement. The administration noted that while 

Europe was one of the U.S. closest allies, they nevertheless maintained more trade protections on 

U.S. products than did the U.S. on European products. The authorities emphasized their strong 

commitment to the WTO and listed WTO reform as a key trade priority, welcoming reform proposals 

from other members. They recognized the risk to the global system of relying on national security as 

grounds for trade action, but expressed that lack of progress in international fora warranted such 

actions. 

Box 6. Impact of a Successful Renegotiation of NAFTA 

Negotiations on an updated North-American Free Trade Agreement have been ongoing since August 2017. 

This box provides an assessment of the potential effects of a successful renegotiation for Canada, Mexico 

and the United States. The analysis focusses on tariff and non-tariff measures, as well as on rules on origin in 

the motor vehicles and auto parts sectors. 

The scenario that is simulated assumes the elimination of all tariffs between the three signatories, a onepercent increase in good trade efficiency, a reduction by 25 percent of service trade inefficiencies, and a 

reduction in compliance costs from rules of origin provisions. 

All three countries would benefit from a successful NAFTA 

renegotiation: 

 Real GDP would increase in all three countries. 

 Trade among the three countries would increase by 

4 percent overall. 

 Canada’s bilateral trade surplus with the U.S. would 

fall by 25 percent; Mexico’s surpluses with Canada and the 

U.S. would remain largely unchanged. 

The composition of production in the three countries would also change. Apparel and textile sectors would 

be growth areas in Mexico, apparel and motor vehicles would be the net gainers in Canada, while dairy 

products and textiles would expand in the U.S. Motor vehicles and auto parts output would increase in all 

three countries. The effects on services industries 

would be relatively small. 

Tighter rules of origin in the automotive sector 

would offset some of these positive effects. If tighter 

rules of origin requirements were put in place, U.S. 

exports of auto parts to Canada and Mexico would 

decline, as would U.S. imports of vehicles from both 

countries. A greater share of the demand for parts 

and vehicles would be met from imports that come 

from outside of the NAFTA countries; Mexico’s auto 

industry would the most negatively affected. 

 

0.37

0.27

0.05

Canada Mexico United States

Percentage Change in Real GDP 

due to Successful NAFTA Renegotiation

-6

-4

-2

0

2

Motor vehicles Auto parts Motor vehicles Auto parts

Successful NAFTA with reduced

compliance costs for rules of origin

Successful NAFTA with tighter rules of

origin

Canada Mexico United States

Percent Changes in Output Volumes with Different Treatment 

of Rules of Origin for Motor Vehicles and Parts
UNITED STATES

INTERNATIONAL MONETARY FUND 27

FINANCIAL SYSTEM OVERSIGHT 

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

since the global financial crisis. Some useful steps are underway to recalibrate and simplify 

financial regulations and better tailor them to underlying risks: 

 Legislation has been signed into law that raises the total asset threshold to US$250 billion for 

bank holding companies (BHC) to be classified as systemic. This strikes a reasonable balance 

between a mandatary application of enhanced prudential standards and providing the Federal 

Reserve with the ability to deem BHCs with assets between US$100–250 billion as systemic and 

subject to such standards. This change will help lessen compliance costs for medium-sized BHCs 

but will necessarily increase the burden on high-quality and independent supervision to manage 

financial stability risks. Consideration should be given to continuing to apply stress-tests at a 

regular frequency for those banks that have assets between US$100-250 billion. In any case, 

implementation of these changes should be done in a way that does not weaken the ability of 

supervisors to take early remediation and risk mitigation actions for BHCs with assets below 

US$250 billion. 

 Modest changes have been made to exclude custodial assets from the calculation of the 

Supplementary Leverage Ratio, include highly liquid municipal bonds in the definition of High 

Quality Liquid Assets (subject to limits and haircuts), and exempt BHCs with total assets under 

US$10 billion from the Volcker rule. These appear to represent appropriate tailoring of the 

Dodd-Frank Act framework for financial oversight, although care should be taken to ensure that 

it does not deviate materially from international standards. 

 The Federal Reserve and the Office of the Comptroller of the Currency have proposed modifying 

the enhanced supplementary leverage ratio (eSLR) for globally systemic important banking 

organizations (GSIBs) to set the ratio at 3 percent plus a buffer of 50 percent of the entity’s riskbased capital surcharge. This would make the risk-based capital requirement, rather than the 

leverage ratio, binding for most GSIBs. The proposal is still somewhat more stringent than 

international minimum standards but would, however, diminish the buffers that have helped 

increase U.S. banking system resilience. 

 The Treasury has argued for changes to the resolution framework to strengthen the courts’ 

ability to deal with complex financial failures under a new special, streamlined bankruptcy 

procedure. This new process would complement—but not replace—the existing Orderly 

Liquidation Authority and more tightly circumscribe the authority granted to the FDIC—

including in the use of public money—when it resolves a financial institution. It will be important 

that this change is implemented in a way that does not limit the flexibility of the resolution 

regime, hinder rapid action, or complicate cross-border resolution. 

 Finally, the Treasury has proposed steps to increase the transparency and analytical rigor of the 

FSOC’s designation process. These include comprehensive cost-benefit analysis and the 
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28 INTERNATIONAL MONETARY FUND

provision of clear guidance for financial institutions that are designated as systemic. In assessing 

systemic risks, evaluations would be based on an activity-based framework and designation 

would be used only as a last resort (when systemic risks cannot be sufficiently mitigated through 

other means). These changes have the potential to strengthen the designation process but much 

will depend on how they are executed. Clarifying the changes to the process and the 

implementation of those changes should be done at an early stage. 

 The Federal Reserve has advanced for comment a proposal to lessen the compliance 

requirements for the Volcker Rule (a part of the Dodd-Frank Act that aimed at restricting the 

ability of banks to engage in proprietary trading). The complexity, and in some cases ambiguity, 

of the regulation has long been considered a problem that creates regulatory uncertainty, raises 

compliance costs, and was difficult to enforce. The proposed measures are largely aimed at 

simplifying the regime, making it easier to enforce, and moving toward a more risk-based 

standard. Such changes are justified based on the experience to date with the rule but it will be 

important to clarify how the revised rule will be enforced and how much latitude banks will have 

for self-policing as well as carefully monitor the effects of its implementation. 

33. When each is taken in isolation, the steps proposed to better tailor financial 

regulations are likely to have only a modest impact on financial stability risks. However, there 

are also potentially important interactions between the various regulatory changes, that largely 

move in a procyclical direction, and the effects of the procyclical fiscal policy that is currently in 

place. This is of even greater concern since, as discussed above, medium-term financial 

vulnerabilities have been steadily building and medium-term financial stability risks are elevated. 

More analysis is needed to build a clear picture of the combined effect of all these changes taken 

together. 

34. Future changes to financial oversight should ensure that the current risk-based 

approach to regulation, supervision and resolution is preserved. Risk-based capital and liquidity 

standards, combined with strong supervision, should remain a central tool in incentivizing financial 

institutions to manage well the risks they undertake. In support of these capital and liquidity 

requirements, the Comprehensive Capital Analysis and Review exercise should be maintained and 

strengthened, including in its assessment of liquidity and contagion risks. While tailoring is fully 

justified, a greater burden of managing financial stability risks will be placed on high-quality and 

independent supervision. The FSOC should continue its efforts to respond to emerging threats to 

financial stability and, in this work, there is scope to strengthen, and more fully resource, the Office 

of Financial Research. Finally, the U.S. should remain engaged in developing the international 

financial regulatory architecture and should be fully committed to agreed international standards. 

35. There remains a need to strengthen the oversight of nonbanks. As has been 

highlighted in previous consultations, there are potential weaknesses in oversight arising from the 

absence of harmonized national standards or consolidated supervision for insurance companies. 

Also, recent proposals to limit the engagement of federal authorities in international supervisory 

fora could prove cumbersome for the insurance standard setting process and the development of 

the global capital standard. Progress has been made in money market reform but residual 
UNITED STATES

INTERNATIONAL MONETARY FUND 29

vulnerabilities, in repo markets and for money market funds, remain. There is also a need to 

introduce a comprehensive liquidity risk management framework for asset managers (that includes 

liquidity risk stress tests). Little progress has been made in reforming the housing finance system or 

the government sponsored enterprises. Finally, impediments to data sharing among regulatory 

agencies remain and there are data blind spots, particularly related to the activities of nonbanks, 

that preclude a full understanding of the nature of financial system risks, interlinkages and 

interconnections. 

Authorities’ Views 

36. The administration is committed to make financial regulation efficient and appropriately 

tailored to the size and systemic risk profile of the institutions, while preserving the improvements 

made since passage of the Dodd-Frank Act. Changes to the eSLR were necessary to make risk-based 

capital standards the binding constraint (rather than the minimum leverage ratio, which is supposed 

to serve as a backstop). Similarly, the orderly liquidation framework was maintained, including the 

orderly liquidation fund, but the role of courts has been strengthened. The increased room for 

maneuver provided by the Economic Growth, Regulatory Relief, and Consumer Protection Act will be 

used to further tailor the supervision of small and medium-sized bank holding companies. 

Separately, the FSOC will use an activities-based approach to systemic risks, relying to the extent 

possible on the primary regulators, with designation of systemically important financial institutions 

reserved for instances where this approach is insufficient; in addition, the designation process will be 

more transparent and accompanied by a clear path for de-designation. Implementing a stress 

capital buffer instead of fixed capital surcharges formalizes the capital constraint for large bank 

holding companies. The authorities do not see the banking system as an imminent source of 

financial stability risk, and risks from institutions outside the regulated perimeter are assessed to be 

moderate (insurance industry, asset management, crypto currencies and cyber risk). 

COMPETITION POLICY 

37. The market power of corporations is becoming more pronounced across a range of 

major U.S. industries, with important macroeconomic effects.

1 Margins between prices and 

variable costs—markups—have been rising steadily since the 1980s, and at an accelerated pace 

since 2010. Measures of industry concentration and profitability mirror this increase in market 

power. Corporate level data for U.S. publicly traded firms suggest that these trends have been driven 

by an increase in rents that are accruing to a relatively small, but growing, number of “superstar” 

firms (some of which have been created through mergers and acquisitions). The same dynamics 

appear to be underway in other advanced economies, although not in emerging market economies. 

 

1

 See F. Diez, D. Leigh, and S. Tambunlertchai, “Global Market Power and its Macroeconomic Implications”, IMF 

Working Paper WP/18/137. 
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30 INTERNATIONAL MONETARY FUND

38. While there is significant heterogeneity in the causes underlying this rising market 

power, the evidence suggests that these developments are having important effects on 

macroeconomic outcomes. These include: 

 Potentially depressing future investment and 

R&D spending. There appears to be a nonmonotonic relationship between market power, 

market concentration, and investment spending 

(on both physical capital and on R&D). At low 

levels of markups, an increase in market power 

is associated with more investment but 

eventually higher markups begin to weaken the 

incentives to invest, particularly for companies 

operating in industries with high levels of 

market concentration. These findings suggest that firms initially invest heavily (in both physical 

capital and R&D) to establish their market power. However, once the industry becomes 

concentrated and firms have consolidated their market position, they act more like monopolists, 

limiting investment below that which would occur in the competitive case. 

 Putting downward pressure on the labor share of income. Higher markups and higher market 

concentration are associated with a declining labor share. Company level data suggests that, as 

companies increase their market power, they start to appropriate a growing share of the rents 

from production, leaving smaller returns accruing to labor (with knock-on effects to the income 

distribution and consumption growth). 

39. The right policy responses to this increase in market power are complex. 

 In cases where barriers to entry or increasing returns are driving the increase in market power, 

and where that power is being used to price discriminate, restrict supply or engage in predatory 

pricing, there is a clear role for applying antitrust policies. 

0.8

1.0

1.2

1.4

1.6

1980 1984 1988 1992 1996 2000 2004 2008 2012 2016

Source: IMF staff estimates. Note: Sales weighted averages .

Markups in Advanced Economies

(ratio of price to variable cost)

US

Canada

AE Europe

Japan

25th -27th percentile

Markups rising over time

0.0

0.5

1.0

1.5

2.0

2.5

02468

Density

Markup

1980

2016

Source: IMF staff estimates for U.S. publicly traded firms.

Distribution of Markups of U.S. Firms

(ratio of price to variable cost)

Firms extracting 

large markups

0

5

10

15

02468

Investment rate (percent of capital stock)

Markup

Investment Rate versus Markup

Note: Dashes indicate 90 percent confidence interval. 

Source: IMF staff estimates for U.S. publicly traded firms.
UNITED STATES

INTERNATIONAL MONETARY FUND 31

 In other cases, network and information externalities or increasing returns to scale may justify an 

oligopolistic structure. However, supernormal profits or rents from such market power should be 

taxed fairly. Care is needed, though, in not unintentionally placing an unfair tax burden on 

returns that arise from up-front investments (in areas such as R&D, for example). This could be 

achieved, for example, by moving to a cashflow tax or another form of rent tax. 

 In either case, public policy should certainly focus on ensuring that markets remain contestable 

and on preventing corporate practices that constitute a restraint of trade. It may also sometimes 

be appropriate for the entity providing the service to be regulated. 

 Finally, insofar as increased market power arises from greater efficiency or technological 

innovation, there may be a public policy role to help workers displaced by such changes in 

market structure, including through relocation or retraining support. Such support should be 

broad-based and apply to all workers that are facing a transition (whether it is a symptom of 

changes in trade patterns, of technology, or of shifts in market power). 

Authorities’ Views

40. The administration is committed to protecting consumers from anticompetitive, deceptive, 

and unfair business practices without unduly burdening legitimate business activity. There is some 

evidence of increasing concentration in some industries, and close antitrust scrutiny is warranted. At 

the same time, the evidence regarding broad economy-wide trends in market power is inconclusive. 

Market power indicators do not lend themselves to meaningful comparisons across industries. While 

market power does not currently represent a significant risk to the U.S. economic outlook, the 

administration intends to rigorously enforce antitrust laws to prevent anticompetitive mergers or 

other anticompetitive business practices.

STAFF APPRAISAL 

41. Economic outlook. The near-term outlook for the U.S. economy is one of strong growth 

and job creation. These positive outturns have supported, and been reinforced by, a favorable 

external environment with a broad-based pick up in global activity. Next year, the U.S. economy is 

expected to mark the longest expansion in its recorded history. However, the same policies that are 

boosting near-term prospects are creating a number of vulnerabilities for the medium-term. 

42. Fiscal policy. The U.S. is pursuing a procyclical fiscal policy that will elevate the risks to the 

U.S. and global economy. The planned expansion in the fiscal deficit should be reversed. The 

administration’s chosen policy path will add to an already-unsustainable public debt, contribute to a 

rise in global imbalances, and increase risks of future recession, with concomitant negative spillovers 

to the global economy. The increase in the federal deficit is expected to have only modest effects on 

potential output and will leave few budget resources available for the government to invest in a 

range of urgently needed supply-side reforms that would boost medium-term growth and raise 

living standards. 
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32 INTERNATIONAL MONETARY FUND

43. Monetary policy. The sizable fiscal stimulus will likely mean that the Federal Reserve will

need to raise policy rates at a faster pace to achieve its dual mandate. Policy rates will likely need to

rise, for a time, above the long-run neutral rate. In executing its monetary policy decisions, the Fed’s

continued adherence to the principles of data dependence and clear communication will be vital. An

inflation surprise, driven by capacity constraints becoming more binding and the economy pushes

further through full employment, represents an important risk that, if realized, would create volatility

and disruptions in U.S. and international financial markets with negative spillovers to other countries.

44. Tax policies. The U.S. should aim to increase its revenue-to-GDP ratio through a greater

reliance on indirect taxes. Personal income tax relief should be targeted at those earning close to or

below the median income, including through a more generous and expansive Earned Income Tax

Credit. The business tax should transition to a cashflow tax, making permanent the immediate

expensing of capital spending and eliminating interest deductibility for new debt. International

provisions should be redesigned to impose a minimum tax that is targeted more narrowly to low-tax

jurisdictions and to avoid discriminatory treatment between imports, exports, and production for

domestic use.

45. Trade. The U.S and its trading partners should work constructively together to reduce

trade barriers and to resolve trade and investment disagreements without resorting to the

imposition of tariff and non-tariff barriers. The various trade measures that have been unilaterally

proposed or enacted by the administration are likely to move the globe further away from an open,

free, fair, reciprocal and rules-based global trading system. This would both damage the U.S.

economy and lead to negative spillovers to trading partners including by catalyzing a cycle of

retaliatory trade responses from others and expanding the circumstances where countries cite

national security motivations to justify broad-based import restrictions.

46. Financial stability. Important gains have been made in strengthening the financial

oversight structure since the global financial crisis. Near-term risks to financial stability appear to be

broadly similar to those at the time of the last Article IV but medium-term risks are elevated. These

risks include those that arise from high equity market valuations, rising leverage and a weakening of

underwriting standards for corporate credit, the growth of passively managed investment products

and the uncertainties pose by cyber risks. Recent proposals to simplify regulations generally

represent further improvements but also place a greater burden on high-quality and independent

supervision to manage financial stability risks. Future changes to financial oversight should continue

to ensure that the current risk-based approach to regulation, supervision and resolution is

preserved. There is an ongoing need to strengthen regulatory and supervisory oversight of

nonbanks.

47. Outward spillovers. The net effect of U.S. policy choices—related to the budget and tax

policy—will be to provide a near-term boost to trading partner output but also to increase the

range and size of future risks and uncertainties and add to global imbalances. Insofar as the chosen

policy mix prompts a tightening of global financial conditions, countries with high levels of U.S.

dollar debt and/or a significant rollover need are likely to come under pressure. There is also a risk
UNITED STATES

INTERNATIONAL MONETARY FUND 33

of a marked reversal of capital flows, away from emerging markets, which could be disruptive. We 

are already starting to see symptoms of these negative spillover effects in other countries. 

48. It is recommended that the next Article IV consultation take place on the standard 

12-month cycle. 

 
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34 INTERNATIONAL MONETARY FUND

Table 1. United States: Selected Economic Indicators 

(percentage change from previous period, unless otherwise indicated) 

2016 2017 2018 2019 2020 2021 2022 2023

National production and income

Real GDP 1.5 2.3 2.9 2.7 1.9 1.7 1.5 1.4

Net exports 1/ -0.2 -0.2 -0.4 -0.6 -0.5 0.0 -0.1 0.0

Total domestic demand 1.7 2.4 3.3 3.2 2.3 1.7 1.6 1.3

Private final consumption 2.7 2.8 2.8 2.5 1.9 2.1 2.1 1.9

Public consumption expenditure 1.0 0.1 1.3 3.0 1.4 0.1 -0.3 -0.6

Gross fixed domestic investment 0.6 3.4 5.7 6.0 4.3 1.3 0.8 0.7

Private fixed investment 0.7 4.0 6.3 6.9 4.6 1.0 0.4 0.2

Public fixed investment -0.2 0.1 2.7 1.6 2.6 2.8 3.2 3.1

Change in private inventories 1/ -0.4 -0.1 0.1 0.0 0.1 0.0 0.0 0.0

Nominal GDP 2.8 4.1 5.4 5.6 4.0 3.8 3.7 3.5

Personal saving rate (% of disposable income) 4.9 3.4 2.5 2.5 2.7 3.0 3.3 3.7

Private investment rate (% of GDP) 16.4 16.6 17.2 17.7 18.1 18.0 17.8 17.6

Unemployment and potential output

Unemployment rate 4.9 4.4 3.8 3.5 3.4 3.6 3.6 3.8

Labor force participation rate 62.8 62.8 62.8 62.6 62.4 62.2 62.0 61.8

Potential GDP 1.7 1.8 2.0 2.0 1.9 1.8 1.7 1.7

Output gap (% of potential GDP) -0.2 0.3 1.2 1.9 1.9 1.8 1.5 1.2

Inflation

CPI inflation (q4/q4) 1.8 2.1 3.2 2.7 2.3 2.2 2.2 2.3

Core CPI Inflation (q4/q4) 2.2 1.7 2.4 2.6 2.5 2.3 2.3 2.3

PCE Inflation (q4/q4) 1.6 1.7 2.8 2.4 2.0 1.9 1.9 2.0

Core PCE Inflation (q4/q4) 1.9 1.5 2.0 2.3 2.2 2.0 2.0 2.0

GDP deflator 1.3 1.8 2.4 2.8 2.0 2.1 2.2 2.1

Government finances

Federal balance (% of GDP) 2/ -3.2 -3.5 -4.1 -4.6 -4.5 -4.7 -5.0 -4.8

Federal debt held by the public (% of GDP) 76.7 76.5 76.9 77.2 78.5 80.5 82.5 84.6

General government budget balance (% of GDP) -4.2 -4.5 -5.3 -5.5 -5.3 -5.4 -5.4 -4.9

General government gross debt (% of GDP) 107.2 105.6 106.0 106.5 108.1 109.9 111.6 113.1

Interest rates (percent; period average)

Fed funds rate 0.4 1.0 1.9 3.0 3.6 3.2 2.9 2.9

Three-month Treasury bill rate 0.3 0.9 2.0 3.0 3.4 3.0 2.7 2.7

Ten-year government bond rate 1.8 2.3 3.0 3.5 3.8 3.7 3.6 3.6

Balance of payments

Current account balance (% of GDP) -2.4 -2.4 -3.0 -3.2 -3.6 -3.4 -3.2 -3.0

Merchandise trade balance (% of GDP) -4.0 -4.2 -4.6 -4.7 -5.2 -5.1 -5.1 -5.0

Export volume (NIPA basis, goods) 0.3 4.5 5.2 2.7 2.1 3.5 2.9 4.4

Import volume (NIPA basis, goods) 0.9 4.3 7.2 7.0 5.9 3.3 3.6 2.9

Net international investment position (% of GDP) -44.7 -40.5 -41.4 -42.5 -44.4 -46.2 -47.8 -49.2

Saving and investment (% of GDP)

Gross national saving 18.0 17.5 17.3 17.6 17.6 17.7 17.8 17.8

General government -1.8 -1.6 -3.6 -4.1 -4.0 -4.0 -3.7 -3.2

Private 19.8 19.0 21.0 21.7 21.6 21.7 21.5 21.1

Personal 3.7 2.5 1.9 1.8 2.0 2.2 2.4 2.8

Business 16.2 16.5 19.1 19.9 19.6 19.5 19.1 18.3

Gross domestic investment 19.7 19.8 20.4 20.8 21.2 21.1 21.0 20.9

Private 16.4 16.6 17.2 17.7 18.1 18.0 17.8 17.6

Public 3.3 3.2 3.2 3.1 3.1 3.1 3.2 3.2

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.

Projections
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Table 2. United States: Balance of Payments 

(percentage change from previous period, unless otherwise indicated) 

2016 2017 2018 2019 2020 2021 2022 2023

Real exports growth

Goods and services -0.3 3.4 4.2 2.9 2.4 3.6 3.1 3.8

Goods 0.3 4.5 5.2 2.7 2.1 3.5 2.9 4.4

Services -1.5 1.3 2.3 3.2 3.1 3.7 3.3 2.9

Real imports growth

Goods and services 1.3 4.0 6.3 6.3 5.1 2.9 3.2 2.8

Goods 0.9 4.3 7.2 7.0 5.9 3.3 3.6 2.9

Nonpetroleum goods 0.5 4.7 8.7 8.3 6.3 3.5 4.1 3.3

Petroleum goods 5.3 -0.4 -7.0 -5.1 1.0 0.3 -2.8 -1.7

Services 3.2 2.5 2.2 3.0 1.6 1.0 1.5 1.9

Net exports (contribution to real GDP growth) -0.2 -0.2 -0.4 -0.6 -0.5 0.0 -0.1 0.0

Nominal exports

Goods and services 11.9 12.1 12.6 13.0 12.9 12.7 12.7 12.7

Nominal imports

Goods and services 14.7 15.0 15.9 16.4 16.7 16.4 16.3 16.0

Current account

Current account balance -2.4 -2.4 -3.0 -3.2 -3.6 -3.4 -3.2 -3.0

Balance on trade in goods and services -2.7 -2.9 -3.4 -3.5 -3.9 -3.8 -3.6 -3.4

Balance on income 0.3 0.5 0.3 0.3 0.3 0.3 0.4 0.4

Capital and Financial Account

Capital account balance 0.0 0.1 0.0 0.0 0.1 0.1 0.1 0.1

Financial account balance -2.0 -1.8 -3.0 -3.2 -3.6 -3.4 -3.2 -3.0

Direct investment, net -0.9 0.4 -0.5 -0.4 -0.3 -0.4 -0.4 -0.4

Potrfolio investment, net -1.1 -1.3 -2.4 -2.5 -2.4 -1.8 -1.7 -1.7

Financial derivatives, net 0.1 0.1 -0.1 0.0 0.0 0.0 0.0 0.0

Other investment, net -0.2 -1.0 0.0 -0.3 -0.8 -1.2 -1.1 -0.9

Reserve assets, net 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Errors and Omissions 0.4 0.5 0.0 0.0 0.0 0.0 0.0 0.0

Net International Investment Position -44.7 -40.5 -41.4 -42.5 -44.4 -46.2 -47.8 -49.2

Direct investment, net -1.0 0.0 -0.5 -1.0 -1.3 -1.6 -2.0 -2.3

Potrfolio investment, net -40.1 -36.4 -37.1 -37.6 -38.6 -39.0 -39.3 -39.8

Financial derivatives, net 0.3 0.1 0.2 0.2 0.2 0.2 0.2 0.2

Other investment, net -6.0 -6.5 -6.2 -6.2 -6.8 -7.7 -8.6 -9.1

Reserve assets, net 2.2 2.3 2.2 2.1 2.0 1.9 1.9 1.8

Memorandum items

Current account balance (US$ billions) -452 -466 -618 -698 -812 -799 -780 -756

Non-oil trade balance (% of GDP) -2.4 -2.6 -2.8 -3.1 -3.5 -3.5 -3.4 -3.2

Foreign real GDP growth 2.3 2.9 2.8 2.9 2.8 2.7 2.7 2.6

U.S. real GDP growth 1.5 2.3 2.9 2.7 1.9 1.7 1.5 1.4

U.S. real total domestic demand growth 1.7 2.4 3.3 3.2 2.3 1.7 1.6 1.3

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

Projections
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Table 3. United States: Federal and General Government Finances

(percent of GDP) 

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Federal government

Revenue 17.3 16.6 16.5 16.7 16.8 17.0 17.2 17.4 17.6 18.1 18.5

Expenditure 20.8 20.7 21.2 21.2 21.5 22.0 22.0 21.9 22.3 22.7 22.9

Non-interest 19.4 19.1 19.3 19.1 19.2 19.6 19.6 19.4 19.8 20.0 20.2

Interest 1.4 1.6 1.8 2.1 2.3 2.4 2.5 2.5 2.5 2.6 2.8

Budget balance 1/ -3.5 -4.1 -4.6 -4.5 -4.7 -5.0 -4.8 -4.5 -4.7 -4.5 -4.4

Primary balance 2/ -2.1 -2.5 -2.8 -2.4 -2.4 -2.6 -2.3 -2.0 -2.2 -1.9 -1.7

Primary structural balance 3/ 4/ -2.1 -2.7 -3.2 -2.8 -2.8 -3.0 -2.6 -1.8 -2.1 -1.7 -1.5

 Change -0.3 -0.6 -0.5 0.4 0.0 -0.2 0.4 0.8 -0.3 0.3 0.2

Federal debt held by the public 76.5 76.9 77.2 78.5 80.5 82.5 84.6 85.9 87.5 88.8 89.9

General government

Revenue 32.4 31.7 31.6 31.7 31.7 31.9 32.1 32.2 32.4 33.1 33.1

Expenditure 36.9 37.0 37.1 37.0 37.1 37.3 37.0 36.8 37.0 37.1 37.3

 Net interest 2.1 2.2 2.5 2.7 2.8 2.9 3.0 3.0 3.1 3.2 3.3

Net lending 1/ -4.5 -5.3 -5.5 -5.3 -5.4 -5.4 -4.9 -4.6 -4.6 -4.1 -4.2

Primary balance 2/ -2.5 -3.0 -3.1 -2.6 -2.6 -2.4 -2.0 -1.6 -1.5 -0.9 -0.9

Primary structural balance 3/ 4/ -2.7 -3.5 -3.8 -3.3 -3.2 -3.0 -2.3 -1.6 -1.5 -1.0 0.5

 Change -0.4 -0.8 -0.3 0.4 0.1 0.2 0.7 0.8 0.1 0.5 1.4

Gross debt 105.6 106.0 106.5 108.1 109.9 111.6 113.1 113.8 114.5 116.2 116.4

incl. unfunded pension liab. 124.4 124.9 125.4 127.1 129.0 130.8 132.3 133.1 133.9 135.7 135.9

Memorandum items

Federal government deficit

President's latest budget -3.5 -4.2 -4.7 -4.5 -3.9 -3.7 -3.0 -2.3 -2.1 -1.7 -1.4

CBO budget assessment -3.5 -3.9 -4.5 -3.9 -4.1 -4.4 -3.9 -3.4 -3.4 -3.2 -3.4

CBO baseline (current law) -3.5 -3.9 -4.6 -4.6 -4.9 -5.4 -5.2 -4.9 -5.1 -4.8 -4.6

Federal government debt

President's latest budget 76.5 78.8 80.3 81.3 81.7 81.9 81.3 79.9 78.4 76.6 74.6

CBO budget assessment 76.5 78.0 79.1 80.1 81.5 83.2 84.3 84.6 85.0 85.3 85.7

CBO baseline (current law) 76.5 78.0 79.2 80.8 82.9 85.6 87.8 89.5 91.4 93.0 94.4

Sources: Congressional Budget Office; Office of Management and Budget; and IMF staff estimates.

1/ Includes staff's adjustments for one-off items, including costs of financial sector support.

2/ Excludes net interest.

3/ Excludes net interest, effects of economic cycle, and costs of financial sector support.

 4/ Percent of potential GDP.

 

(fiscal years; budget basis)

(calendar years; GFSM2001 basis)

Note: Fiscal projections are based on the June 2017 Congressional Budget Office baseline 

adjusted for the IMF staff’s policy and macroeconomic assumptions. Projections incorporate the 

effects of 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.

(from authorities)

Projections
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Table 4. United States: Core FSIs for Deposit Takers 

(percent unless stated otherwise) 

2011 2012 2013 2014 2015 2016 2017

Regulatory capital to risk-weighted assets 14.7 14.5 14.4 14.4 14.1 14.2 14.4

Regulatory tier 1 capital to risk-weighted assets 12.6 12.7 12.8 13.1 13.1 13.2 13.4

Non-performing loans net of provisions to capital 17.6 15.7 11.7 8.8 7.2 6.6 5.8

Non-performing loans to total gross loans 3.8 3.3 2.5 1.9 1.5 1.3 1.2

Sectoral distribution of total loans: residents 95.6 95.5 95.2 95.6 95.8 96.1 96.1

Sectoral distribution of total loans: deposit-takers 6.0 6.0 5.0 4.1 3.6 3.8 3.7

Sectoral distribution of total loans: other financial corporations 3.8 4.4 5.2 6.2 6.7 6.7 6.8

Sectoral distribution of total loans: general government 0.9 1.1 1.2 1.3 1.4 1.5 1.6

Sectoral distribution of total loans: nonfinancial corporations 31.8 32.1 33.3 34.2 35.0 35.5 35.9

Sectoral distribution of total loans: other domestic sectors 53.1 51.9 50.5 49.8 49.1 48.5 48.1

Sectoral distribution of total loans: nonresidents 4.4 4.5 4.8 4.4 4.2 3.9 3.9

Return on assets 0.3 0.3 0.4 0.3 0.4 0.4 0.4

Return on equity 2.3 2.7 3.3 2.8 3.0 3.2 3.3

Interest margin to gross income 65.2 60.8 63.5 63.7 63.4 65.1 65.4

Non-interest expenses to gross income 64.5 63.6 61.7 64.7 60.7 59.6 58.2

Liquid assets to total assets (liquid asset ratio) 12.7 13.4 14.5 14.5 13.2 12.8 13.3

Liquid assets to short term liabilities 66.1 74.1 88.3 90.0 91.2 98.2 101.0

Note: 2017 data is the average from 2017Q1-Q3.

DCCBS: Domestically controlled cross-border, cross sector consolidation basis.

DC: Domestic consolidation basis.

DCCB: Domestically controlled, cross-border consolidation basis.

CBDI: Cross-border consolidation basis.

FBB: Foreign bank branch consolidation basis.

OTHER: Other consolidation basis.

NA: Not Applicable.

MIXED: Mixed.
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Annex I. Risk Assessment Matrix1

Nature/Source of Risk 

Overall Level of Concern 

Medium-term Likelihood of Realization Expected Impact if Risk Materializes 

Retreat from crossborder integration 

Medium Medium 

Fraying consensus about the benefits of 

globalization leads to protectionism and economic 

isolationism, resulting in reduced global and 

regional policy and regulatory collaboration with 

negative consequences for trade, capital and labor 

flows, sentiment, and growth. 

A retreat from cross-border integration 

would have wide-ranging negative effects 

on trade, capital flows, growth, confidence, 

and global cooperation on financial 

regulation.

Policy uncertainty 

Medium Medium

Two-sided risks to U.S. growth with uncertainties 

about the positive short-term impact of the tax bill 

on growth and the extent of potential mediumterm adjustment to offset its fiscal costs; 

uncertainty associated with negotiating post-Brexit 

arrangements and NAFTA and associated market 

fragmentation risks; and evolving political 

processes, including elections in several large 

economies, weigh on global growth. 

Policy shifts could fuel global imbalances as 

well as FX and capital flow volatility. 

Significant U.S. 

slowdown 

Medium High

As the current recovery ages and vulnerabilities 

build up, the risks of a sharper-than-expected 

slowdown increase. The proximate causes could be 

a fiscal contraction associated with the eventual 

planned withdrawal of the tax stimulus or market 

fears of overheating. 

The output gap could close more abruptly, 

through a policy-induced recession which 

would have a negative impact on both the 

U.S. and the global economy. 

Intensification of the 

risks of fragmentation / 

security dislocation 

High Low

Intensification of the risks of fragmentation/security 

dislocation in parts of the Middle East, Africa, Asia, 

and Europe, leading to socio-economic disruptions.

Adapting to changes to migration flows 

could pose challenges and could create 

negative spillovers to other countries.

Tighter global financial 

conditions 

High Medium

Against the backdrop of continued monetary policy 

normalization and increasingly stretched valuations 

across asset classes, an abrupt change in global risk 

appetite (e.g., due to higher-than-expected 

inflation in the U.S) could lead to sudden, sharp 

increases in interest rates and associated tightening 

of financial conditions. Higher debt service and 

refinancing risks could stress leveraged firms, 

households, and vulnerable sovereigns, including 

through capital account pressures in some cases. 

A 10 percent dollar appreciation is 

estimated to reduce GDP by around 0.5 

percentage points in the first year and 0.5-

0.8 percentage points in the second year. 

The current account deficit would also 

widen by around 1 percent of GDP. 

Structurally weak 

growth in key advanced 

economies

High Medium

Low productivity growth (U.S., euro area and 

Japan), high debt, and failure to fully address crisis 

legacies by undertaking structural reforms amidst 

persistently low inflation (euro area and Japan) 

undermine medium-term growth.

A 1-percentage point decline in growth in 

advanced and emerging economies could 

subtract about 0.1 percentage points of U.S. 

GDP after two years. If disruption feeds into 

global financial markets or risk aversion the 

effect would be larger. 1

 The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to 

materialize in the view of IMF staff). The relative likelihood 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. “Short term (ST)” and 

“medium term (MT)” are meant to indicate that the risk could materialize within 1 year and 3 years, respectively. 
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Significant China 

slowdown and its 

spillovers 

Low / Medium Medium

While ongoing efforts by the Chinese authorities to 

“de-risk” the financial system are welcome, too fast 

an adjustment and improper sequencing of actions 

may adversely affect near-term growth (low 

likelihood). Over the medium term, overly 

ambitious growth targets, including by over 

reliance on credit stimulus and investment, lead to 

unsustainable policies, reducing fiscal space, further 

increasing financial imbalances. A sharp adjustment 

would weaken domestic demand, with adverse 

international spillovers, including a pullback in 

capital flows to EMs (medium likelihood). 

A 1-percentage point decline in growth in 

advanced and emerging economies could 

subtract about 0.1 percentage points of U.S. 

GDP after two years. If disruption feeds into 

global financial markets or risk aversion the 

effect would be larger.

Low energy prices 

Low Low / Medium

Driven by weakening OPEC/Russia cartel cohesion 

and/or recovery of oil production in the African 

continent. 

With the level of U.S. oil investment already 

cut in half over the past 3 years, renewed 

price declines are unlikely to have strong 

effects on aggregate U.S. growth. However, 

solvency risk in the oil sector would rise. 

Cyber-attacks 

Medium High

Cyber-attacks on interconnected financial systems 

and broader private and public institutions that 

trigger systemic financial instability or widely 

disrupt socio-economic activities. 

Shock to critical infrastructure causes delay, 

denial, disruption, breakdown or loss of 

services, affecting many institutions that rely 

on the attacked hub. This could also lead to 

a loss of confidence in the functioning of 

the financial system. 
United States 

Foreign asset and liability position and trajectory

Background. The net international investment position (NIIP) increased from -44.7 percent of GDP in 2016 to -40.5 percent of GDP in 2017 (but still somewhat below the average of -37.3 percent of GDP for the period 2012-2016),mostly due to valuation changes linked to the depreciation of the U.S. dollar by end-2017. Under staff’s baseline scenario, theNIIP is projected to decline by about 8 percent of GDP over the next five years, due to a path of increasing current accountdeficits.Assessment. Financial stability risks could surface in the form of an unexpected decline in foreign demand for U.S. fixed income securities, which are the major component of the country’s external liabilities. This risk has risen with the deterioration in the U.S. medium-term fiscal outlook, but remains moderate given the dominant status of the U.S. dollar as a reserve currency. Most U.S. foreign assets are denominated in foreign currency and around 65 percent are in the form of FDI and portfolio equity claims, the value of which tends to decline when global growth and stock markets are weak, and when the U.S. dollar appreciates. 

OverThe UmodemedidesiraThe sand tto inccomithe lefundaActuatradepolicto the PoteFiscageneof abfederof abneceson a CA gastrenand fincludenveltransenhaworkpoor, in the based and ishouto the tariff 

Current account CA Assessment 2017 

Background. The U.S. CA deficit was unchanged between 2016 and 2017 at 2.4 percent of GDP, compared to a deficit of 2.1 percent of GDP in 2013. The deterioration was led by the non-oil balance, which reached a deficit of 2.0 percent of GDP in 2017 compared to a deficit of 0.6 percent of GDP in 2013. Two opposing forces have been at play in 2017: a depreciating dollar and stronger private investment growth. The CA deficit is expected to increase over the medium-term due to a stronger U.S. economy and the planned fiscal expansion, including the 2017 tax cuts. Assessment. The EBA model estimates a cyclically-adjusted CA of -2.2 percent of GDP, and a cyclically-adjusted CA norm of -0.7 percent of GDP. The cyclically-adjusted CA gap is -1.5 percent of GDP for 2017, reflecting policy gaps (-0.5 percent of GDP) and an unidentified residual (-1.0 percent of GDP). The External Sustainability Approach estimates a CA gap of -2.2 percent of GDP. On balance, staff assesses the 2017 cyclically-adjusted CA to be 1.0 to 2.0 percent of GDP lower than the level implied by medium-term fundamentals and desirable policies. Actual CA -2.4 Cycl. Adj. CA -2.2 EBA CA Norm -0.7 EBA CA Gap -1.5 Staff Adj. 0.0 Staff CA Gap -1.5 

Real exchange rate 

Background. The real effective exchange rate (REER) appreciated by about 18 percent between 2012 and 2016 but it depreciated by about 0.6 percent in 2017. As of May 2018, the REER has depreciated by about 3.5 percent relative to the 2017 average. Assessment. Indirect estimates of the REER (based on the EBA current account assessment) imply that the exchange rate was overvalued by 12 percent in 2017 (applying an estimated elasticity of 0.12). The EBA REER index model suggests an overvaluation of 8 percent, the EBA REER level model suggests an overvaluation of 14 percent, and the External Sustainability Approach estimates a REER overvaluation of 18 percent. Considering all the estimates and their uncertainties, staff assesses the 2017 average REER to be moderately overvalued, in the 8-16 percent range, compared to the level implied by mediumterm fundamentals and desirable policies. The recent currency depreciation has reduced this gap. 

Capital and financial accounts: flows and policy measures 

Background. Net financial inflows were about 1.8 percent of GDP in 2017, compared to 2.0 percent of GDP in 2016. Net portfolio investments and other investments increased by 0.2 and 0.8 percent of GDP, respectively, year over year, in 2017 butwere partially offset by weaker net direct investments. Assessment. The U.S. has a fully open capital account. Vulnerabilities are limited by the dollar’s status as a reserve currency with foreign demand for U.S. Treasury securities supported by the stronger outlook for the U.S. economy compared to key trading partners, the status of the dollar as 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 U.S. are typically low relative to standard metrics. The currency is free floating.

40 INTERNATIONAL MONETARY FUND
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Annex III. Public Debt Sustainability Analysis 

The U.S. budget deficit started rising in 2016, following a decline during 2010-15, 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 and interest rates normalize. In addition, tax cuts and discretionary spending increases 

enacted since late-2017 are adding to the pressure on the U.S. public finances. Gross financing needs 

are large, but 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. 

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 because of

the Great Recession and associate fiscal measures. The Bipartisan Budget Acts of 2013, 2015, and

2018 partially reversed the cuts scheduled to take place since FY2014, partially replacing them with

savings generated through cuts to mandatory spending in later years. On the other hand, the Tax

Act of 2015 and the Tax Cuts and Jobs Act of 2017, extended many tax cuts through the medium

term and made some permanent, in addition to introducing new tax cuts. This will lead to higher

deficits in the medium and long term.

2. Baseline. The staff’s baseline is based on current laws. Under this baseline, public debt is

projected to continue rising as age-related spending pressures on entitlement programs assert

themselves and interest rates normalize. Federal debt held by the public is projected to increase

from about 77.4 percent of GDP in 2017 to around 95.6 percent of GDP in 2027, with general

government gross debt rising from about 107.8 percent of GDP to 120 percent of GDP during this

period.

3. Adjustment scenario. The 2017 general

government primary deficit was 2.5 percent of GDP.

In staff’s view, aiming for a medium-term general

government primary surplus of about 11⁄4 percent

of GDP (a federal government surplus of about 11⁄2

percent of GDP) would be appropriate to put the

public debt ratio firmly on a downward path. The

target primary surplus would have to be larger to

bring the debt ratio closer to pre-crisis levels by

2030.

4. Debt servicing costs. The fiscal

projections benefit from the current favorable interest rate-growth differential. Reflecting

accommodative monetary policy and the safe-haven status of the United States, real interest rates

have fallen well below GDP growth. Under the staff’s baseline, the effective interest rate is projected

to rise gradually from the currently still low level of 1 percent and reach 3.7 percent by 2027 (which
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42 INTERNATIONAL MONETARY FUND 

is near its2006–16 average level). Thus, real interest rates will become a major debt-creating flow 

over the medium-term. 

5. Realism. Baseline economic assumptions and fiscal projections are generally within the

error band observed for all countries. While ambitious, the projected fiscal adjustment is realistic

based on the consolidation episodes observed in 1990–2011.

6. Stress tests. The public debt dynamics are highly sensitive to growth and interest rate

assumptions, primarily reflecting the fact that the U.S. public debt ratio already exceeds 100 percent

of GDP. An increase of 200 basis points in the sovereign risk premium would raise the debt ratio to

about 130 percent of GDP by 2027, about 10 percentage points of GDP above the baseline.

Similarly, were real GDP growth to be one standard deviation below the baseline, the public debt

would increase by about 10 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 by

about 5 percentage points above the baseline in 2027. A combined macro-fiscal shock could raise

the public debt ratio to as high as 145 percent of GDP by 2027. An exchange rate shock is unlikely to

have important implications for debt sustainability in the United States given that all debt is

denominated in local currency and the reserve currency status of the dollar.

7. Mitigating factors. The depth and liquidity of the U.S. Treasury market as well as its safehaven status at times of distress represent a mitigating factor for relatively high external financing

requirements.
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Figure 1. United States: Public DSA-Baseline Scenario 

(Percent of GDP, unless otherwise indicated) 

As of May 18, 2018

2007–2015 2/ 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Sovereign Spreads

Nominal gross public debt 93.3 107.2 105.6 105.9 106.5 108.0 109.9 111.6 113.1 113.8 114.6 116.2 116.5 Spread (bp) 3/ 222

Public gross financing needs 17.5 14.9 16.8 28.3 24.9 24.1 24.7 26.6 26.2 26.3 26.5 27.5 28.1 CDS (bp) 9

Real GDP growth (percent) 1.4 1.5 2.3 2.9 2.7 1.9 1.7 1.5 1.4 1.7 1.7 1.7 1.7 Ratings Foreign Local

Inflation (GDP deflator, percent) 1.7 1.3 1.8 2.4 2.8 2.0 2.1 2.2 2.1 2.1 2.1 2.1 2.1 Moody's Aaa Aaa

Nominal GDP growth (percent) 3.0 2.8 4.1 5.4 5.6 4.0 3.8 3.7 3.5 3.9 3.9 3.9 3.9 S&Ps AA+ AA+

Effective interest rate (percent) 4/ 3.2 2.4 2.5 1.3 2.1 2.4 2.7 3.0 3.5 3.8 4.1 4.4 4.6 Fitch AAA AAA

2007–2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Cumulative

Change in gross public sector debt 4.6 1.9 -1.6 0.3 0.6 1.5 1.9 1.8 1.5 0.7 0.7 1.7 0.3 10.9

Identified debt-creating flows 4.9 1.8 0.8 -1.1 -0.4 1.0 1.4 1.7 1.9 1.6 1.8 2.3 2.7 12.8

Primary deficit 5.0 2.2 2.5 3.0 3.1 2.6 2.6 2.4 2.0 1.6 1.5 1.7 1.9 22.4

Primary (noninterest) revenue and grants 29.8 30.8 31.9 31.2 31.0 31.0 31.0 31.1 31.3 31.3 31.5 31.7 31.8 312.8

Primary (noninterest) expenditure 34.7 33.0 34.4 34.2 34.0 33.6 33.5 33.6 33.2 32.9 33.0 33.4 33.7 335.2

Automatic debt dynamics 5/ -0.1 -0.4 -1.7 -4.1 -3.5 -1.7 -1.2 -0.7 -0.1 0.0 0.3 0.6 0.8 -9.7

Interest rate/growth differential 6/ -0.1 -0.4 -1.7 -4.1 -3.5 -1.7 -1.2 -0.7 -0.1 0.0 0.3 0.6 0.8 -9.7

Of which: real interest rate 1.2 1.1 0.7 -1.2 -0.8 0.3 0.6 0.8 1.4 1.8 2.2 2.4 2.7 10.3

Of which: real GDP growth -1.3 -1.5 -2.3 -2.9 -2.7 -2.0 -1.8 -1.6 -1.5 -1.9 -1.9 -1.9 -1.9 -19.9

Exchange rate depreciation 7/ 0.0 0.0 0.0 ... ... ... ... ... ... ... ... ... ... ...

Other identified debt-creating flows 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net privatization proceeds 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Contingent liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other liabilities (bank recap. and PSI sweetner) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Residual, including asset changes 8/ -0.3 0.1 -2.4 1.4 1.0 0.5 0.5 0.0 -0.4 -0.9 -1.1 -0.6 -2.4 -1.8

Source: IMF staff

1/ Public sector is defined as general government

2/ Based on available data

3/ Bond Spread over German Bonds

4/ Defined as interest payments divided by debt stock at the end of previous year

6/ The real interest rate contribution is derived from the denominator in footnote 4 as r - π (1+g) and the real growth contribution as -g

7/ The exchange rate contribution is derived from the numerator in footnote 2/ as ae(1+r).

8/ For projections, this line includes exchange rate changes during the projection period. Also includes ESM capital contribution, arrears clearance, SMP and ANFA income, and the effect of deferred interest

9/ Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year

5/ Derived as [(r - p(1+g) - g + ae(1+r)]/(1+g+p+gp)) times previous period debt ratio, with r = interest rate; p = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange 

rate depreciation 

Debt, Economic and Market Indicators 1/

Debt-stabilizing 

primary balance 9/

0.8

Actual

Contribution to Changes in Public Debt

Actual Projections

Projections

-10

-5

0

5

10

15

20

-10

-5

0

5

10

15

20

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Primary deficit Real GDP growth

Real interest rate Exchange rate depreciation

Other debt-creating flows Residual

Projections

Debt‐Creating Flows

(percent of GDP)

-40

-30

-20

-10

0

10

20

30

40

50

cumulative
UNITED STATES

44 INTERNATIONAL MONETARY FUND 

Figure 2. United States: Public DSA-Composition of Public Debt and Alternative Scenarios 

Composition of Public Debt 

Baseline Historical Constant Primary Balance

Baseline scenario 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Historical scenario 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Real GDP growth 2.9 2.7 1.9 1.7 1.5 1.4 1.7 1.7 1.7 1.7 Real GDP growth 2.9 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4 1.4

Inflation 2.4 2.8 2.0 2.1 2.2 2.1 2.1 2.1 2.1 2.1 Inflation 2.4 2.8 2.0 2.1 2.2 2.1 2.1 2.1 2.1 2.1

Primary balance -3.0 -3.1 -2.6 -2.6 -2.4 -2.0 -1.6 -1.5 -1.7 -1.9 Primary balance -3.0 -4.9 -4.9 -4.9 -4.9 -4.9 -4.9 -4.9 -4.9 -4.9

Effective interest rate 1.3 2.1 2.4 2.7 3.0 3.5 3.8 4.1 4.4 4.6 Effective interest rate 1.3 2.1 2.7 3.2 3.7 4.3 4.7 5.1 5.3 5.5

Constant primary balance scenario

Real GDP growth 2.9 2.7 1.9 1.7 1.5 1.4 1.7 1.7 1.7 1.7

Inflation 2.4 2.8 2.0 2.1 2.2 2.1 2.1 2.1 2.1 2.1

Primary balance -3.0 -3.0 -3.0 -3.0 -3.0 -3.0 -3.0 -3.0 -3.0 -3.0

Effective interest rate 1.3 2.1 2.4 2.7 3.0 3.5 3.8 4.1 4.3 4.5

Source: IMF staff

(Percent)

Alternative Scenarios

Underlying Assumptions

0

20

40

60

80

100

120

140

2009 2011 2013 2015 2017 2019 2021 2023 2025 2027

By Maturity 

(Percent of GDP)

Medium and long-term

Short-term

projection

0

25

50

75

100

125

150

175

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Gross Nominal Public Debt

(Percent of GDP)

0

20

40

60

80

100

120

140

2009 2011 2013 2015 2017 2019 2021 2023 2025 2027

By Currency

(Percent of GDP)

Local currency-denominated

Foreign currency-denominated projection

0

5

10

15

20

25

30

35

40

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Public Gross Financing Needs

(Percent of GDP)
UNITED STATES

INTERNATIONAL MONETARY FUND 45

Figure 3. United States: Public DSA-Realism of Baseline Assumptions 

Forecast Track Record, versus all Countries 

 
UNITED STATES

46 INTERNATIONAL MONETARY FUND 

Figure 4. United States: Public DSA-Stress Tests 

Macro-Fiscal Stress Tests 

 

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Primary Balance Shock Real GDP Growth Shock

Real GDP growth 2.9 2.7 2.0 1.7 1.5 1.5 1.8 1.7 1.7 1.7 Real GDP growth 2.9 1.0 0.2 1.7 1.5 1.4 1.7 1.7 1.7 1.7

Inflation 2.4 2.8 2.0 2.1 2.2 2.1 2.1 2.1 2.1 2.1 Inflation 2.4 2.4 1.6 2.1 2.2 2.1 2.1 2.1 2.1 2.1

Primary balance -3.0 -4.7 -4.3 -2.6 -2.4 -2.0 -1.6 -1.5 -1.7 -1.9 Primary balance -3.0 -4.5 -3.6 -4.0 -2.4 -2.0 -1.6 -1.5 -1.7 -1.9

Effective interest rate 1.3 2.1 2.5 2.8 3.1 3.6 3.9 4.2 4.4 4.6 Effective interest rate 1.3 2.1 2.4 2.7 3.1 3.5 3.9 4.1 4.3 4.5

Real Interest Rate Shock Real Exchange Rate Shock

Real GDP growth 2.9 1.5 0.9 1.1 1.1 1.2 1.5 1.5 1.5 1.5 Real GDP growth 2.9 2.2 1.7 1.7 1.5 1.4 1.7 1.7 1.7 1.7

Inflation 2.4 2.8 2.0 2.1 2.2 2.1 2.1 2.1 2.1 2.1 Inflation 2.4 3.0 2.0 2.1 2.2 2.1 2.1 2.1 2.1 2.1

Primary balance -3.0 -3.1 -2.6 -2.6 -2.4 -2.0 -1.6 -1.5 -1.7 -1.9 Primary balance -3.0 -3.6 -3.1 -2.6 -2.4 -2.0 -1.6 -1.5 -1.7 -1.9

Effective interest rate 1.3 2.1 2.6 3.1 3.5 4.1 4.5 4.9 5.1 5.4 Effective interest rate 1.3 2.1 2.4 2.7 3.0 3.5 3.8 4.1 4.3 4.5

Combined Shock Contingent Liability Shock

Real GDP growth 2.9 1.0 0.2 1.1 1.1 1.2 1.5 1.5 1.5 1.5 Real GDP growth 2.9 1.0 0.2 1.7 1.5 1.4 1.7 1.7 1.7 1.7

Inflation 2.4 2.4 1.6 2.1 2.2 2.1 2.1 2.1 2.1 2.1 Inflation 2.4 2.4 1.6 2.1 2.2 2.1 2.1 2.1 2.1 2.1

Primary balance -3.0 -5.1 -4.6 -4.0 -2.4 -2.0 -1.6 -1.5 -1.7 -1.9 Primary balance -3.0 -3.1 -2.6 -2.6 -2.4 -2.0 -1.6 -1.5 -1.7 -1.9

Effective interest rate 1.3 2.1 2.7 3.1 3.6 4.1 4.6 4.9 5.2 5.4 Effective interest rate 1.3 2.2 2.4 2.7 3.0 3.5 3.8 4.1 4.3 4.5

Source: IMF staff

Underlying Assumptions

(Percent)

Additional 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

100

105

110

115

120

125

130

135

140

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Gross Nominal Public Debt

(Percent of GDP)

250

270

290

310

330

350

370

390

410

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Gross Nominal Public Debt

(Percent of Revenue)

10

14

18

22

26

30

34

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Public Gross Financing Needs

(Percent of GDP)

90

95

100

105

110

115

120

125

130

135

140

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Gross Nominal Public Debt

(Percent of GDP)

250

270

290

310

330

350

370

390

410

430

450

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Gross Nominal Public Debt

(Percent of Revenue)

10

15

20

25

30

35

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Public Gross Financing Needs

(Percent of GDP)
UNITED STATES

INTERNATIONAL MONETARY FUND 47

Figure 5. United States: Public DSA-Risk Assessment 

Heat Map Baseline (2015-2025) 

United States

Source: IMF staff

5/ Includes liabilities to the Eurosystem related to TARGET

4/ An average over the last 3 months, 17-Feb-18 through 18-May-18

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

p( )

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

Exchange Rate 

Shock

Contingent 

Liability Shock

Change in the 

Share of ShortTerm Debt

Foreign 

Currency 

Debt

Public Debt 

Held by NonResidents

1

1.5

1 2

0.4%

1 2

Not applicable 

400 for United States

600

1 2

214 bp

17

25

1 2

29%

Bond Spread over 

German Bonds

External Financing 

Requirement 5/

Annual Change in 

Short-Term Public 

Debt

Public Debt in 

Foreign Currency

(Basis points) 4/ (Percent of GDP) (Percent of total) (Percent of total)

60

80

100

120

140

160

2017 2019 2021 2023 2025 2027

Baseline Percentiles: 10th-25th 25th-75th 75th-90th

Symmetric Distribution

60

80

100

120

140

160

2017 2019 2021 2023 2025 2027

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:

30

45

1 2

27%

Public Debt Held 

by Non-Residents

(Percent of total)
UNITED STATES

48 INTERNATIONAL MONETARY FUND 

Annex IV. Implementation of FSAP Recommendations1

1For the summary of the bilateral repo data collection, see https://www.financialresearch.gov/data/repo-dataproject/, for the summary of the securities lending data collection, see 

https://www.financialresearch.gov/data/securities-lending-data-collection-project/. 

# FSAP 

Recommendation 

Developments Status 

Macroprudential 

framework and policy

1 Provide an explicit 

financial stability 

mandate to all FSOC 

member agencies 

Several agencies continue to have no explicit legal mandate 

to support financial stability. As discussed in the 2015 FSAP, 

this can complicate their input to the Financial Stability 

Oversight Council (FSOC), and potentially undermines the 

response to the committee’s recommendations and 

macroprudential coordination. While not all FSOC agencies 

within their existing authorities have an explicit legal mandate 

to support financial stability, they all continue to make 

progress toward financial reforms. Some FSOC agencies, 

however (including the U.S. federal banking agencies), have, 

as their responsibilities, key roles in maintaining financial 

stability. 

Not 

implemented 

2 Include in FSOC Annual 

Report specific followup actions for each 

material threat 

identified 

The FSOC’s 2015,2016, and 2017 Annual Reports discuss in a 

detailed manner each material threat identified, provides 

updates on regulations and other measures proposed or 

implemented in response to each threat, and outlines the 

research agenda. However, specific timelines and responsible 

agencies are not identified. 

Partially 

implemented 

3 Publish the current U.S. 

macroprudential toolkit 

and prioritize further 

development 

The FSAP recommended that the FSOC should identify when 

macroprudential tools are needed, and promote the 

implementation of effective system-wide and time-varying 

macroprudential tools. The macroprudential toolkit remains 

to be centrally published, and a prioritization to be made. 

Partially 

implemented 
UNITED STATES

INTERNATIONAL MONETARY FUND 49

 The FSAP recommended further development and 

implementation of time-varying 

macroprudential tools, like the countercyclical capital buffer 

(CCyB): Necessary final steps on application triggers required 

to implement the CCyB should be completed; the scope to 

alter risk-weights on particular types of lending needs to be 

assessed; macroprudential tools could be used in the real 

estate sector (e.g. by varying maximum loan-to-value and 

debt-to-income ratios). 

In September 2016, the Federal Reserve (FRB) approved a 

final policy statement detailing the framework for setting the 

countercyclical capital buffer (CCyB). The policy statement 

provides background on the range of financial-system 

vulnerabilities and other factors the FRB may take into 

account as it evaluates settings for the buffer, including but 

not limited to, leverage in the nonfinancial and financial 

sectors, maturity and liquidity transformation in the financial

sector, and asset valuation pressures. Due to the constantly 

evolving nature of economic and financial risks, the FRB is 

likely to adapt the range of indicators and models over time. 

The FRB has re-assessed the level of the CCyB annually since 

adopting the policy statement. Most recently, in December 

2017, the FRB affirmed the amount of the CCyB at 0 percent. 

4 Expedite heightened 

prudential standards for 

designated non-bank 

systemically important 

financial institutions 

(SIFIs) 

In 2015, the FRB adopted a comprehensive set of enhanced 

prudential standards (EPS) for General Electric Capital 

Corporation, Inc. (GECC), which was designated by the FSOC 

in July 2013 for Federal Reserve supervision. The EPS included 

capital and liquidity requirements, capital planning and stress

testing requirements, financial risk management 

requirements, and restrictions on intercompany transactions 

between GECC and its parent. The FSOC rescinded the 

designation of GECC in June 2016 and AIG in September 

2017. 

On June 3, 2016, the FRB approved an advance notice of 

proposed rulemaking (ANPR) inviting comment on 

conceptual frameworks for capital standards that could apply 

to systemically important insurance companies and to 

insurance companies that own a bank or thrift. The standards 

would differ for each population of insurance firms 

supervised by the FRB. In parallel, the FRB approved a notice 

Partially 

implemented 
UNITED STATES

50 INTERNATIONAL MONETARY FUND 

of proposed rulemaking to apply EPS for the systemically 

important insurance companies as designated by the FSOC. 

In line with the Dodd-Frank Act (DFA), these proposed 

standards would apply consistent liquidity, corporate 

governance, and risk management standards to the firms and 

require the firms to employ both a chief risk officer and chief

actuary. 

5 Improve data collection, 

and address 

impediments to interagency data sharing 

The Office of Financial Research (OFR) Interagency Data 

Inventory (IDI), which catalogues the data that FSOC member 

agencies purchase or collect from the industry or derive from 

other data, had its annual update in March 2017. FSOC 

member agencies use the inventory for identifying data gaps 

and for improving research and analysis but, due to specific 

restrictions to data sharing, the listing of data in the inventory 

does not necessarily signify that all FSOC member agencies 

have access to all data sets. In support of FSOC, OFR 

facilitated a review of data sharing agreements to identify 

areas for standardization (see OFR 2016 Financial Stability 

Report) 

OFR, along with the FRB, New York Federal Reserve, and the 

Securities and Exchange Commission (SEC) have completed 

pilot data collections about bilateral repurchase agreements 

(repos) and securities lending activity. The OFR has made the 

summary of findings publicly available on its website.1

 Steady 

progress in data collection and sharing is being made, 

including areas previously identified as those where more 

work needs to be done: (i) The collection of data on securities

lending, and bilateral repos is still at an early stage; (ii) 

outstanding obstacles to interagency data sharing should be 

reduced, as recommended in the FSAP. 

Section 21(c)(7) of the Commodity Exchange Act directs swap 

data repositories to make swap data available to certain 

enumerated domestic authorities and any other entity the 

Commodity Futures Trading Commission (CFTC) determines 

to be appropriate, which may include certain types of foreign 

authorities. In 2011, the CFTC adopted rules implementing 

these statutory swap data access provisions by establishing 

processes by which various categories of entities could gain 

access to swap data held by swap data repositories. In 

January 2017, the CFTC issued a proposed rule to amend the 

Partially 

implemented 
UNITED STATES

INTERNATIONAL MONETARY FUND 51

2011 access requirements such that certain authorities may 

obtain swap data access efficiently. 

Regulation and 

supervision 

6 Give primacy to safety 

and soundness in the 

supervisory objectives 

of Federal Banking 

Agencies 

The multi-agency framework, which is established by statute, 

continues to require coordination to avoid duplication of 

supervision that can potentially result in uncertainty for 

institutions when rules or guidance appear contradictory. The 

Federal Financial Institutions Examination Council (FFIEC) is a

forum the agencies use to promote consistent approaches to 

bank supervision, which they also try to achieve through 

regular informal communication. By statute, consumer 

protection is the responsibility of the Consumer Financial 

Protection Bureau (CFPB) and the relevant federal banking 

agency. To ensure coordination, the federal banking agencies 

and the CFPB have a memorandum of understanding (MOU) 

in place that establishes a process to coordinate exam 

scheduling. The MOU also requires that exam reports be 

shared and comments considered for those institutions, prior 

to the report of examination being issued to the institution. 

The federal banking agencies’ mandates are established by 

statute and have not been redefined since enactment of the 

DFA, and although safety and soundness have not been given 

primacy in their supervisory objectives to the exclusion of 

consumer compliance objectives, federal banking agencies 

examine for safety and soundness under the Uniform 

Financial Institutions Rating System. 

Partially 

implemented 

7 Strengthen the banking 

supervisory framework 

and limit structures for 

related party lending 

and concentration risk; 

and 

update guidance for 

operational and interest 

rate risk 

Concentration risk: The FRB issued a final rule in November 

2014, Regulation XX, to implement Section 622 of the DFA 

and establish a financial sector concentration limit. Regulation 

XX prohibits a financial company from merging or 

consolidating with, or acquiring control of, another company 

if the resulting company’s liabilities would exceed 10 percent 

of the aggregate consolidated liabilities of all financial 

companies. 

In March 2016, the FRB proposed a rule to address singlecounterparty credit risk. The proposal would apply credit limits 

to Bank Holding Companies (BHCs) with total consolidated 

assets of $50 billion or more. Specifically: (i) GSIBs would be

restricted to a credit exposure of no more than 15 percent of 

Partially 

implemented 
UNITED STATES

52 INTERNATIONAL MONETARY FUND 

the firm’s Tier 1 capital to another systemically important 

financial firm, and up to 25 percent of the firm’s tier 1 capital 

to another counterparty; (ii) non-GSIB BHCs with $250 billion 

or more in total consolidated assets, or $10 billion or more in

on-balance-sheet foreign exposure, would be restricted to a 

credit exposure of no more than 25 percent of the firm’s tier 

1 capital to another counterparty;. (iii) BHCs with $50 billion

or more in total consolidated assets would be restricted to a 

credit exposure of no more than 25 percent of the firm’s total 

regulatory capital to another counterparty; and (iv) BHCs with 

less than $50 billion in total consolidated assets, including 

community banks, would not be subject to the proposal. 

Similarly tailored requirements would also be established for 

the U.S. operations of foreign banks. 

However, comparable supervisory guidance on other risk 

concentrations remains to be issued. The separate and 

additional limits for money market investments and security 

holdings available to banks (but not federal savings 

associations) continue to leave open the possibility of 

excessive risk concentrations. In late 2015, the agencies 

issued guidance on commercial real estate lending, which 

includes, among other things, a discussion of the importance 

of managing concentration risk. 

Guidance on operational risk and interest rate risk: The 

agencies participated in the development of the Standardized 

Approach under the Basel III reforms and are revising US 

capital rules to move away from the AMA. The agencies have 

also issued a number of new pieces of guidance related to 

operational risk. The approach to interest rate risk in the 

banking book does not include specific capital charges or 

limits being set under Pillar 2. Consistent with the IRR 

standard issued by Basel in April 2016, US guidance with 

respect to IRR requires proper oversight of models and 

analysis of risk under a variety of scenarios. Data is collected 

at the regulatory level during examinations. 

Limit structures for related party lending: No progress has 

been made towards implementation of the FSAP 

recommendation. 
UNITED STATES

INTERNATIONAL MONETARY FUND 53

8 Set up an independent 

insurance 

regulatory body with 

nationwide 

responsibilities and 

authority 

The supervisory and regulatory architecture for insurance 

firms has not changed. 

Not 

implemented 

9 Implement principlebased valuation 

standard for life 

insurers consistently 

across the states 

State insurance regulators’ Principle-based Reserving 

Valuation Manual has become operative on January 1, 2017 

for the 45 States and territories that have already adopted the

manual (but as of yet some States have not agreed on 

adopting the standard). Also, this does not automatically 

mean that standards will be fully harmonized across the 

States as risk models would still be approved at State level, 

and legislation leaves some room for interpretation. 

Partially 

implemented 

10 Develop and implement 

group supervision and 

group-level capital 

requirements for 

insurance companies 

In April 2016, the FRB approved proposed consolidated 

financial reporting requirements for systemically important 

insurance companies designated by the FSOC. 

In June 2016, the FRB approved an advance notice of 

proposed rulemaking (ANPR) inviting comment on 

conceptual frameworks for capital standards that could apply 

to systemically important insurance companies and to 

insurance companies that own a bank or thrift. The standards 

would differ for each category of insurance firms supervised 

by the Board. 

Also in June 2016, the Federal Reserve Board approved a 

notice of proposed rulemaking to apply enhanced prudential 

standards for the systemically important insurance companies 

as designated by the FSOC. As required under the 

Dodd-Frank Act, these proposed standards would apply 

consistent liquidity, corporate governance, and risk 

management standards to the firms and require the firms to 

employ both a chief risk officer and chief actuary. 

State insurance regulators are working through the NAIC to 

develop a group capital calculation, which would be an 

additional analysis tool for regulators, but not a quantitative

capital requirement. A timeline was developed in late 2016, 

outlining development work to continue throughout 2017 

and 2018. 

Partially 

implemented 
UNITED STATES

54 INTERNATIONAL MONETARY FUND 

Regarding group supervision, as of June 2017, all 50 states, 

the District of Columbia and Puerto Rico, have adopted the 

updated NAIC model holding company act enhancing state 

insurance regulators’ group supervisory authorities. 

11 Provide needed 

resources to the 

Securities and Exchange 

Commission (SEC) and 

Commodity Futures 

Trading Commission 

(CFTC) and enhance 

their funding stability 

Information on SEC funding for Fiscal Year 2018, is available 

at 

https://appropriations.house.gov/uploadedfiles/03.21.18_fy18

_omnibus_-_financial_services_-_summary.pdf. Information on 

CFTC funding for Fiscal Year 2018, is available at 

https://appropriations.house.gov/uploadedfiles/03.21.18_fy18

_omnibus_-_agriculture_-_summary.pdf

Partially 

implemented 

 Increase examination 

coverage of asset 

managers 

The FSAP recommended that the SEC needs to be better 

equipped in order to be able to significantly increase the 

number of asset manager examinations from the current 

coverage of only around 10 percent of investment advisers 

per year. 

The SEC has continued to take two primary approaches to 

increasing examination coverage of registered investment 

advisers. First, the SEC allocated a significant number of new 

staff to its investment adviser/investment company 

examination program (IA/IC). Second, the SEC’s examination 

program in fiscal year 2016 transitioned some resources from 

other parts of the program to IA/IC with a goal of increasing 

the size of the IA/IC program. SEC staff examined 11 percent 

of investment advisers in fiscal year 2016, 15percent of 

investment advisers in fiscal year 2017, and expects to 

examine 15percent of investment advisers in fiscal years 2018 

and 2019. 

Implemented 

12 Introduce explicit 

requirements on risk 

management and 

internal controls for 

asset managers and 

commodity pool 

operators 

The FSOC has actively reviewed potential risks to financial 

stability stemming from the asset management industry, and 

in April 2016 published an update of its review of asset 

management products and activities that expresses FSOC’s 

views on certain matters relating to operational risk in the 

asset management industry (see further below). The SEC also 

adopted rules in October 2016 requiring open-end funds to 

have liquidity risk management programs with certain 

required elements (see further below). 

Partially 

implemented 
UNITED STATES

INTERNATIONAL MONETARY FUND 55

13 Complete the 

assessment of equity 

market structure and 

address regulatory gaps 

Since the FSAP, the SEC has issued several significant 

proposals related to equity market structure that are related 

to the issues raised in the FSAP recommendations. 

Specifically, the SEC proposed to enhance operational 

transparency and regulatory oversight of ATSs. See

http://www.sec.gov/rules/proposed/2015/34-76474.pdf In 

addition, the SEC approved the consolidated audit trail, which 

would enable regulators to efficiently track all trading activity 

in the U.S. equity and options markets. See

https://www.sec.gov/rules/sro/nms/2016/34-79318.pdf. In 

addition, SEC staff continually evaluates equity market 

structure. For example, SEC staff recently announced a series 

of roundtables devoted to specific equity market structure 

topics. The first roundtable was held on April 23, 2018 and 

considered market structure issues for thinly-traded 

securities. https://www.sec.gov/spotlight/equity-marketstructure-roundtables Finally, SEC staff analysis of market 

structure topics is published on the SEC website at 

http://www.sec.gov/marketstructure/ 

Implemented 

Stress testing

14 Conduct liquidity stress 

testing for banks and 

nonbanks on a regular 

basis; run regular 

network analyses; and 

link liquidity, solvency, 

and network analyses 

While the Comprehensive Capital Analysis and Review (CCAR) 

and DFA stress tests continue to take the form of supervisory 

solvency stress tests in which second-round effects are not 

explicitly incorporated, they are implicitly captured in a few 

ways. First, the macro scenarios are based on very severe 

recessions coupled with significant declines in asset prices. In 

the past, such recessions have been associated with very 

weak banking sectors, so the macro dynamics should reflect 

the amplification effects from the banking system. Second, 

the global market shock is based on the movements of asset 

prices in the second half of 2008, a period that saw the 

default of a SIFI and the distress of several systemically 

important institutions. Thus, market conditions should reflect 

the “second round” effects of the failure of a major financial 

company. Third, in implementing the default of the largest 

counterparty element, participating banks are instructed to 

compute outcomes if the counterparty whose default would 

cause the largest losses (under the market conditions 

described in the market shock) was to default. While this does 

not capture additional second-round effects beyond those 

described above, it does guarantee that the first-round 

effects are as large as possible. 

Partially 

implemented 
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56 INTERNATIONAL MONETARY FUND 

Federal banking agencies finalized a rule implementing the 

Liquidity Coverage Ratio (LCR), and proposed a Net Stable 

Funding Ratio (NSFR) in 2016, both for bank holding 

companies with at least $50 billion in assets. Per definition, 

the LCR is a short-term liquidity stress test, and banks are 

expected to pass the underlying stress scenario on a 

continuous basis. The proposed NSFR would establish a 

quantitative metric that measures the stability of a firm’s 

funding profile over a one-year timeframe. However, stress 

testing exercises, like the DFA stress tests or the CCAR, focus

on credit and market risk, not on funding and market liquidity 

risk. 

Authorities do not yet conduct, on regular basis, liquidity 

stress tests on nonbanks. However, the SEC requires MMFs to 

conduct regular stress tests, including on their liquidity, and

certain of the largest broker-dealers are providing additional 

information regarding their liquidity risk so SEC staff can 

better monitor the firm’s management of that risk. The SEC 

also adopted rules in October 2016 requiring open-end funds 

to have liquidity risk management programs with certain 

required elements (see further below). 

Network analysis, and integration with liquidity and solvency 

stress tests. The DFA stress tests and the CCAR do not 

integrate different risk classes beyond credit and market risk.

The tests look at banks individually, with contagion and 

spillover risks entering implicitly though the macro dynamics 

in the current scenarios rather than explicitly being assessed 

in the tests. Publicly available information suggests there is 

no supervisory requirement to integrate in a single 

framework different risk factors. OFR has conducted research 

on network models within the context of stress testing and 

contagion. 

The Federal Reserve conducts an annual review of the 

liquidity stress testing practices, liquidity position, and 

liquidity risk management practices of systemically important 

banking organizations. Under this program, supervisors 

assess the adequacy of firms' liquidity positions relative to 

their unique risks and test the reliability of these firms' 
UNITED STATES

INTERNATIONAL MONETARY FUND 57

approaches to managing liquidity risk. The review provides a 

regular opportunity for supervisors to respond to evolving 

liquidity risks and firm practices over time. The supervisory 

review evaluates firms' liquidity positions both through a 

range of supervisory liquidity metrics and through analysis of 

firms' internal stress tests. The assessment includes an 

examination of the stress tests that each firm uses to make 

funding decisions and to determine its liquidity needs and an 

assessment of a range of liquidity risk management practices.

15 Develop and perform 

regular insurance stress 

tests on a consolidated 

group-level basis 

State insurance regulators assess the stress tests performed 

by insurance companies on a consolidated group-level basis 

through the Own Risk and Solvency Assessment (ORSA) 

under the Risk Management and Own Risk Assessment 

Model Act, which has been adopted by 47 states and will 

become an NAIC accreditation requirement on January 1, 

2018. 

Though no macroprudential insurance sector stress testing is 

performed by regulators, the aforementioned group capital 

calculation timeline estimates development of a stress testing 

process could begin in the fall of 2017 

Partially 

implemented 

16 Develop and perform 

regular liquidity stress 

tests for the asset 

management industry 

The FSOC has actively reviewed potential risks to financial 

stability stemming from the asset management industry, and 

in April 2016 published an update to its review of asset 

management products and activities. The update summarized 

the status of an almost two-year long review process, and 

provided the FSOC’s view on areas that require specific 

attention. The report discussed three proposals issued by the 

SEC in 2015. The SEC proposals addressed enhanced data 

reporting for registered investment companies and for 

investment advisers regarding their separately managed 

account business; a strengthening of open-end funds’ 

liquidity risk management and disclosure; and limits to 

leverage obtained through derivatives transactions by 

registered investment companies. The FSOC’s review focused 

on five areas: liquidity and redemption risk; leverage risk; 

operational risk; securities lending risk; and firm resolvability 

and transition planning. As regards liquidity and redemption 

risks, the FSOC expressed its view regarding certain steps that

should be considered to mitigate financial stability risks, 

including robust liquidity risk management practices for 

Partially 

implemented 
UNITED STATES

58 INTERNATIONAL MONETARY FUND 

mutual funds, particularly with regard to preparations for 

stressed conditions by funds that invest in less-liquid assets;

the issuance of guidelines on funds’ holdings of assets with 

very limited liquidity; enhanced reporting and disclosure; and 

the use of tools to allocate redemption costs more directly to 

investors who redeem shares. In October 2016, the SEC 

finalized certain aspects of its proposals. The SEC adopted 

rules requiring that open-end funds have liquidity risk 

management programs with certain required elements, 

including an assessment of a fund’s liquidity risk that 

evaluates, among other things, the fund’s investment strategy 

and liquidity of portfolio investments in both normal and 

reasonably foreseeable stressed conditions and the fund’s 

cash flow projections in both normal and reasonably 

foreseeable stressed conditions. The rules further require that

these funds disclose certain information regarding the 

liquidity of the funds’ holdings and liquidity risk management 

practices. In October 2016, the SEC also adopted rules 

permitting open-end funds under certain circumstances to 

use swing pricing to pass on transaction costs to the 

shareholders associated with those transactions and to help 

funds manage liquidity risk.

However, in February 2018, the SEC announced a delay of the 

compliance dates by six months for the asset liquidity 

classification and classification-related requirements of its 

liqudity risk management rules. In March 2018, the SEC 

proposed amendments to public liquidity-related disclosure 

requirements for certain open-end investment management 

companies. Under the proposal, funds would discuss in their 

annual reports the operation and effectiveness of their 

liquidity risk management programs, replacing a pending 

requirement that funds publicly provide the aggregate 

liquidity classification profiles of their portfolios on Form NPORT on a quarterly basis. 

Market-based finance 

and systemic liquidity 

17 Change redemption 

structures for mutual 

funds (MF) to lessen 

incentives to run; move 

FSOC expressed its views on considering taking steps to allow 

and facilitate MFs’ allocation of redemption costs more 

directly to investors who redeem shares. Such tools would 

help reduce first-mover advantage and mitigate the risk that 

Partially 

implemented 
UNITED STATES

INTERNATIONAL MONETARY FUND 59

all money market 

mutual funds (MMMFs) 

to variable net asset 

value (NAV) approaches 

less-liquid asset classes would be subject to fire sales under 

stressed conditions. It was further stated that regulators 

should consider assessing which tools could be effective in 

reducing first-mover advantage and determine the scope of 

application of such tools. FSOC welcomed the SEC’s 

September 2015 proposed rule for MFs and ETFs designed to 

enhance liquidity risk management, provide new disclosures 

regarding fund liquidity, and allow MFs to adopt swing 

pricing to pass on transaction costs to entering and exiting 

investors. Regulators should consider issuing guidance on 

adequate risk management planning, and establish 

expectations regarding MFs’ abilities to meet redemptions 

under a variety of extreme but plausible stressed market 

scenarios (stress testing). In October 2016, the SEC adopted 

rules requiring enhanced data reporting for registered 

investment companies and for investment advisers regarding 

their separately managed account business and mandated 

that open-end funds have liquidity risk management 

programs with certain required elements. The SEC also 

adopted rules permitting open-end funds under certain 

circumstances to use swing pricing to pass on transaction 

costs to the shareholders associated with purchases and 

redemptions and to help funds manage liquidity risk.

MMMFs and variable NAV: IMF staff has long recommended 

the adoption of floating NAVs for MMMFs, which mandate 

the daily share prices of these funds to fluctuate with changes

in the market-based value of fund assets. The new rules 

issued by the SEC require floating NAVs for institutional 

prime MMMFs but allow retail and government MMMFs to 

continue using an amortized cost method of pricing where 

constant NAVs are applied. For the latter group of MMMFs, 

the rules provide new tools—liquidity fees and redemption 

gates—to address potential runs but structural vulnerabilities 

remain. The rules were fully implemented in October 2016. 

18 Complete triparty repo 

(TPR) reforms and 

measures to reduce 

run-risk, including the 

possible use of a 

central clearing 

platforms (CCPs) 

The underlying infrastructure of the TPR market, a key stress 

point in the global financial crisis, has been improved. The 

amount of intra-day credit extended to collateral providers 

has been reduced by over 95 percent as a result of 

changes in practice and process made to adhere to the 

reform roadmap. Also, clearing banks are now limited to 

funding a maximum of 10 percent of a dealer’s notional triImplemented 
UNITED STATES

60 INTERNATIONAL MONETARY FUND 

party book through pre-committed lines (incurring a capital 

charge). 

Risk of fire-sales of collateral by a dealer losing access to repo 

or by a dealer’s creditors: Although the risk of collateral firesales is reduced through the capital and liquidity regulations 

for broker-dealers, it remains a significant risk that warrants

attention. 

Intraday counterparty risk exposure in the tri-party 

repurchase (repo) market contracted significantly in recent 

years. The potential for fire sales of collateral by creditors of a 

defaulted broker-dealer remains a significant risk. 

Additionally, data gaps continue to limit regulators’ ability to 

monitor the aggregate repo market and identify 

interdependencies among firms and market participants. 

Regulators will need to monitor market responses to new SEC 

money market mutual fund (MMF) rules, which were fully 

implemented in October 2016, and assess where there may 

be unforeseen risks. Regulators also should monitor potential 

regulatory and data gaps associated with other types of cash 

management vehicles. 

19 Enhance disclosures 

and regulatory 

reporting of securities 

lending 

In early 2016, the Office of Financial Research (OFR), FRB, and

SEC completed a joint securities lending data collection pilot. 

The purpose of the pilot data collection was to collect 

information directly from seven securities lending agents that 

participated in the pilot project voluntarily. In April 2016, the 

FSOC expressed its view that without comprehensive 

information on securities lending activities across the financial 

system, regulators cannot fully assess potential financial 

stability risk, and encouraged efforts to propose and adopt a 

rule for a permanent collection of data on securities lending 

Relevant agencies continue to consult on these issues. In 

October 2016, the SEC adopted new reporting requirements 

for registered investment companies, which include 

information on their securities lending activities. However, in

December 2017, the SEC voted to delay requirements 

regarding portfolio-level reporting for large investment 

companies from July 2018 to April 2019. Registered 

investment companies are required to comply with other 

reporting requirements, including requirements to provide 

Partially 

implemented 
UNITED STATES

INTERNATIONAL MONETARY FUND 61

annual information regarding securities lending, on June 1, 

2018. 

20 Strengthen brokerdealer regulation, in 

particular liquidity and 

leverage regulations 

The U.S. authorities are tackling financial leverage through 

regulating financial products as well as the types of market 

participants (of which some are not subject to direct 

regulation): Broker-dealer requirements, like margin rules for 

securities transactions, central clearing of derivatives 

(fostering product standardization and increasing liquidity), as 

well as newly introduced margin requirements for uncleared 

swaps constitute important examples of regulatory and 

supervisory efforts. With respect to liquidity, the SEC 

proposed funding liquidity stress test requirements for 

broker-dealers approved to use VaR models to compute 

capital. In addition, certain of the largest broker-dealers are

providing additional information regarding their liquidity risk

so SEC staff can better monitor the firm’s management of 

that risk. 

To reduce the financial stability risk potential of derivatives, 

US bank swap dealers are now required to collect and post 

margin on (almost) all swaps that cannot be centrally cleared. 

The use of uncleared derivatives is thereby made less 

attractive, and the requirements will encourage the use of 

standard derivatives that go through central clearinghouses. 

This measure also helps ensure that a default of a major OTC 

derivatives market participant would not bring down the 

system. 

In December 2015, the SEC proposed rules on the use of 

derivatives by registered investment companies, limiting 

leverage generated through derivatives, and requiring 

formalized risk management programs for funds with 

particularly complex derivatives structures. 

In October 2015, FRB, Federal Deposit Insurance Corporation 

(FDIC), Office of the Comptroller of the Currency (OCC), Farm 

Credit Administration (FCA), and Federal Housing Finance 

Agency (FHFA) issued a final rule on capital and margin 

requirements for common swap entities (swap dealers, key 

swap participants, security-based swap dealers and 

participants). In parallel, the agencies issued another final rule 

that specified which non-cleared swaps and security-based 

Partially 

implemented 
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62 INTERNATIONAL MONETARY FUND 

swaps are exempted from the general rule. Compliance with 

the initial margin and variation margin requirements was 

effective for the largest participants in September 2016. 

Variation margin became effective for the remaining 

participants in March 2017. Initial margin is to be phased-in 

each year through September 2020 for the remaining 

participants based on declining notional amounts 

In January 2016, the CFTC issued its final rule on margin 

requirements for uncleared swaps. The CFTC final rule on 

cross-border application of margin requirements was 

published in May 2016. Implementation of the CFTC’s final 

regulations on margin requirements for swap entities not 

regulated for this purpose by a U.S. prudential regulator was 

initiated for initial margin on a phase-in basis starting on 

September 1, 2016 and was effective for variation margin as 

of March 1, 2017. In addition, the CFTC issued a comparability 

determination for Japan’s and the European Union’s margin 

requirements for uncleared swaps in September 2016 and 

October 2017, respectively. 

21 Improve data 

availability across 

bilateral repo/triparty 

repo and securities 

lending markets 

The OFR’s Bilateral Repo Data Collection Pilot Project aims at 

collecting data about bilateral repos (see above). Data on the 

triparty and GCF repo markets are published regularly. In 

October 2016, SEC adopted new reporting requirements for 

registered investment companies, which include information 

about their securities lending activities. However, in 

December 2017, the SEC voted to delay requirements 

regarding portfolio-level reporting for large investment 

companies from July 2018 to April 2019. Registered 

investment companies are required to comply with other 

reporting requirements, including requirements to provide 

annual information regarding securities lending, on 

June 1, 2018. 

Despite these efforts, considerably more work needs to be 

done with respect to data collection on securities lending 

where data is scarce. Also, information collection on securities 

lending and bilateral repos is still at an early stage. 

Partially 

implemented 
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INTERNATIONAL MONETARY FUND 63

Liquidity backstops, 

crisis preparedness, 

and resolution

22 Revamp the Primary 

Credit Facility as a 

monetary instrument 

The Federal Reserve is evaluating a number of key elements 

of its long-run operating framework and this idea is being 

studied as part of the project. At the FOMC’s November 2016 

meeting Federal Reserve staff discussed considerations 

regarding potential choices of operating regimes and the 

issue of stigma associated with borrowing from the discount 

window. 

Not 

implemented 

23 Enable the Fed to lend 

to solvent non-banks 

that are designated as 

systemically important 

In November 2015, the Federal Reserve approved a final rule 

specifying its procedures for emergency lending under Section 

13(3) of the Federal Reserve Act. Since the passage of the 

DFA in 2010, the FRB’s emergency lending activity has been 

limited to programs and facilities with "broad-based 

eligibility" that have been established with the approval of 

the Secretary of the Treasury. The rule provides greater clarity 

regarding the FRB’s implementation of limitations to 

emergency lending, and other statutory requirements. The 

final rule defines "broad-based" to mean “a program or 

facility that is not designed for the purpose of aiding any 

number of failing firms and in which at least five entities 

would be eligible to participate.” These additional limitations

are consistent with and provide further support to the 

revisions made by the DFA that a program should not be for 

the purpose of aiding specific companies to avoid bankruptcy 

or resolution. Solvent non-banks that have been designated 

as systemically important by the FSOC would be able to 

participate in these programs to the extent they satisfy the 

applicable facility eligibility requirements. 

Partially 

implemented 

24 Assign formal crisis 

preparedness and 

management 

coordinating role to 

FSOC 

Crisis preparedness and management has not been formally 

assigned to the FSOC. Publicly available information suggests 

no progress has been made towards implementation of the 

FSAP recommendation. FSOC has been used as a forum for 

regulators to discuss certain fast-emerging topics including 

Brexit, Hurricane Sandy, and the bankruptcy of MF Global. 

Not 

implemented 

25 Extend the Orderly 

Liquidation Authority 

powers to cover 

systemically-important 

Systemically important U.S. insurance holding companies can 

be resolved using Orderly Liquidation Authority (OLA) 

powers. The resolution of individual legal entity insurance 

company subsidiaries, however, falls to the State-based 

resolution regime, under which States have tools available to 

Partially 

implemented 
UNITED STATES

64 INTERNATIONAL MONETARY FUND 

insurance companies 

and U.S. 

branches of foreignowned banks 

address insurance company insolvencies and/or liquidations. 

The State-based resolution regimes related to the resolution 

of insurance company subsidiaries, which have tools available 

to address failed insurance companies through liquidation or 

runoff, have been successfully used in the past, but have not 

been tested on insurance company subsidiaries of a 

systemically important holding company. 

To the extent a foreign bank has branches in the United 

States, a Single Point of Entry resolution strategy generally 

would not affect such branches. 

26 Adopt powers to 

support foreign 

resolution measures; 

extend preference to 

overseas depositors 

To the extent insured depository institutions enter resolution 

under the FDI Act, the depositor preference rules applicable 

to insured depository institutions can complicate effective 

coordination by potentially increasing the likelihood of ringfencing of foreign branches by host authorities. However, 

host authorities could take mitigating action by requiring 

branches in their jurisdiction to amend deposit agreements to 

include statutorily required language that would extend 

preference to depositors of such branches. 

Partially 

implemented 

27 Finalize recovery and 

resolution plans for 

SIFIs, agree cooperation 

agreements with 

overseas authorities 

Important steps have been made towards implementing 

effective recovery and resolution frameworks. The U.S. 

supervisory authorities place responsibility for the recovery 

planning process on the firm’s senior management. The 

board of directors of the firm is responsible for oversight of 

the firm’s recovery planning process. Recovery plans are 

updated at least annually. 

On September 29, 2016, OCC issued guidelines that establish 

enforceable standards for recovery planning by its supervised 

institutions with average total consolidated assets of $50 

billion or more. The final guidelines provide that a covered 

bank should develop and maintain a recovery plan that 

identifies triggers, which are quantitative or qualitative 

indicators of the risk or existence of severe stress, and the 

breach of a trigger should always be escalated to senior 

management, the board of directors (board), or an 

appropriate committee of the board, as appropriate, for 

purposes of initiating a response. To identify triggers that 

appropriately reflect the particular vulnerabilities of a covered 

bank, the bank should design severe stress scenarios that 

Partially 

implemented 
UNITED STATES

INTERNATIONAL MONETARY FUND 65

would threaten its critical operations or cause the covered 

bank to fail if one or more recovery options were not 

implemented in a timely manner. The plan should identify a 

wide range of credible options that a covered bank could 

undertake in response to severe stress to restore its financial

strength and viability. A recovery plan should include an 

assessment and description of how each credible option 

would affect the covered ban and address escalation 

procedures, management reports, and communication 

procedures.

To prepare for the implementation of its resolution authority 

under Title II of the Dodd-Frank Act, the FDIC has developed 

resolution plans for G-SIFIs and has included in each plan a 

resolution strategy and an operational plan that meet the 

standards set out in the applicable Key Attributes and relevant 

annexes thereto. 

Furthermore, the establishment of living wills is an essential 

requirement in the DFA, under which SIFIs and certain other 

firms are asked to design, and submit for review to the FRB 

and the FDIC, concise plans explaining their orderly resolution

under bankruptcy. Since 2012, the FRB and the FDIC have 

reviewed several iterations of plans from U.S. BHCs and 

foreign banking organizations with at least $50 billion of 

consolidated assets and have issued substantial feedback. In 

December 2017, the FRB and the FDIC jointly issued feedback 

to the eight largest and most complex domestic BHCs 

concerning their most recent plans. The agencies noted that 

the U.S. G-SIBs have made substantial progress across 

numerous areas, and identified four areas in which more work 

will need to be done by all eight U.S. G-SIBs to continue to 

improve their resolvability: intra-group liquidity; internal lossabsorbing capacity; derivatives; and payment, clearing, and 

settlement activity. The next submissions from the U.S. G-SIBs 

are expected in July 2019. 

Firm-specific cooperation agreements that meet the 

standards set out in the relevant Key Attributes and relevant 

annexes thereto have been executed for all U.S. G-SIBs and 

for one U.S. G-SII. 
UNITED STATES

66 INTERNATIONAL MONETARY FUND 

In December 2016, the Federal Reserve Board approved a 

final rule that imposes total loss absorbing capacity (TLAC) 

and long-term debt requirements on the eight U.S. GSIBs and 

on the U.S. intermediate holding companies (IHCs) of foreign 

GSIBs. The final rule is consistent with the FSB TLAC standard,

but is stricter in a few respects. The final rule also imposes 

clean holding company requirements on GSIBs. 

Financial market 

infrastructures (FMIs)

28 Identify and manage 

system-wide risks 

related to 

interdependencies 

among FMIs, banks, 

and markets 

Progress has been made towards implementation of the FSAP 

recommendation. The Federal Reserve Board of Governors 

(FRB), the SEC, and the CFTC continue efforts to increase the 

resilience and recoverability of financial market infrastructures 

(FMIs), with particular emphasis on central counterparties 

(CCPs). U.S. authorities advanced domestic efforts and 

continued to extensively participate and contribute to 

numerous international work streams. 

Domestically, U.S. authorities have undertaken several 

important efforts, including the following: 

 U.S. authorities have adopted risk management standards

for systemically important FMIs, including expectations for

recovery and orderly wind-down planning.

 With respect to recovery, U.S. authorities have

implemented regulatory requirements for recovery plans,

initial versions of which have been completed. Authorities

are examining the viability and comprehensiveness of the

completed plans.

 The authorities also are actively engaging in resolution

planning for systemic CCPs. In 2017, the FDIC and the

CFTC co-hosted the inaugural crisis management group

(CMGs) meetings for two U.S. systemic CCPs-the Chicago

Mercantile Exchange and Ice Clear Credit, LLC. The next

CMGs are scheduled for June 2018.

 In September 2016, the CFTC issued final cybersecurity

testing rules for FMIs and markets.

International efforts include the following: 

Implemented 
UNITED STATES

INTERNATIONAL MONETARY FUND 67

 The U.S. authorities participated in the Study Group in 

Central Counterparty Independencies (SGCCI), which was 

established by the Financial Stability Board (FSB), the 

International Organization of Securities Commissions 

(IOSCO), and the Basel Committee on Banking Supervision 

(BCBS) to identify, quantify and analyze interdependencies 

between CCPs and major clearing members. The results 

from the SGCCI’s analysis were published in July 2017. 

 The U.S. authorities, as members of CPMI-IOSCO, 

participated extensively in the drafting of reports, at both 

the consultation and final stage, for the CPMI-IOSCO’s 

Framework for Supervisory Stress Testing of CCPs, CPMIIOSCO’s Resilience of Central Counterparties (CCPs): 

Further Guidance on the PFMI, and Recovery of FMIs. The 

final versions were published in July 2017 (Resilience of 

CCPs and Recovery of FMIs) and April 2018 (the 

Framework for Supervisory Stress Testing for CCPs). U.S. 

authorities also contributed to CPMI-IOSCO’s report on 

“Guidance on cyber resilience for financial market 

infrastructures” published in June 2016. 

 U.S. authorities are participating in the FSB work streams 

on resolution of CCPs and the continuity of access to FMIs 

for members in resolution. The FDIC co-chairs the FSB 

work stream on CCP resolution, which published in July 

2017 “Guidance on Central Counterparty Resolution and 

Resolution Planning.” 

 Offer Fed accounts to 

designated Financial 

Market Infrastructures 

(FMUs) to reduce 

dependencies on 

commercial bank 

services 

 

By December 2017, requests from designated Financial 

Market Infrastructures have been authorized by the Federal 

Reserve Banks of Chicago and New York. As of May 1, 2018, 

there are no outstanding requests. 

The following five U.S. clearinghouses have been authorized 

to open accounts at the central bank: ICE Clear Credit, CME 

Inc., the Options Clearing Corporation, the National Securities

Clearing Corporation, and the Fixed Income Clearing 

Corporation. The measure has been possible because these 

clearing houses have been designated as systemically 

important utilities. ] 

Implemented 

Housing finance

29 Reinvigorate the 

momentum for 

Housing finance and the U.S. housing market have not been 

reformed comprehensively. 

Not 

implemented 
UNITED STATES

68 INTERNATIONAL MONETARY FUND 

comprehensive housing 

market reform 

To date, no legislative or executive action has been taken to 

reduce substantially the footprint of Fannie Mae and Freddie 

Mac (“Enterprises”). However, as conservator, the Federal 

Housing Finance Agency (FHFA) has required market-based 

credit risk transfers from the Enterprises to the private sector 

at an increasing level since 2013. The Enterprises have also 

jointly developed a common securitization platform and have 

announced that they will issue a new uniform mortgagebacked security starting June 2019. These Enterprise reforms 

have been accomplished administratively and have not 

reformed the entire housing finance system, which would 

require legislative action. 

Since 2015, the FHFA has directed the Enterprises to fund the 

Housing Trust Fund and Capital Magnet Funds (as required 

by the 2008 Housing and Economic Recovery Act) by 

transferring a portion of total new acquisitions to these funds, 

which are administered by the Department of Housing and 

Urban Development and Treasury Department, respectively. 

FHFA has the discretion to suspend the Enterprise allocations 

to the affordable housing funds, including the Housing Trust 

Fund, if the allocations are contributing to the Enterprise’s 

financial instability. Moreover, the Senior Preferred Stock 

Purchase Agreements (PSPA’s) are sources of strength for the 

Enterprises. Indeed, the PSPA’s between the Treasury and 

each Enterprise both ensure the ability of each Enterprise to 

meet its financial obligations and to ensure that they will have 

minimal net worth as all profits above the capital reserve 

amount are transferred to Treasury each quarter. The capital 

reserve amount had been declining by $600 million per year 

and was scheduled to decline to $0 on January 1, 2018. 

However, on December 21, 2017, FHFA and the Department 

of the Treasury agreed to reinstate a $3 billion capital reserve 

amount for each Enterprise to prevent draws on the PSPA 

due to fluctuations in the Enterprises’ income due to the 

normal course of business. Despite the new capital reserve, 

the December 2017 tax cuts caused the Enterprises to draw a 

combined total of $4 billion at the end of that quarter. 

Policymakers have been evaluating and developing a 

potential comprehensive overhaul of the mortgage finance 

system over ten years after the federal government took 

control of Fannie Mae and Freddie Mac that could shrink or 

eventually close the two entities and create a system with 
UNITED STATES

INTERNATIONAL MONETARY FUND 69

more private capital. The Congressional Budget Office (CBO) 

has provided analyses on these issues. One such analysis 

prepared at the request of the Chairman of the House 

Committee on Financial Services, analyzed alternatives for 

attracting more private capital to the secondary mortgage 

market and alternative structures for that market, including a 

fully federal agency, a hybrid, public-private market, a market

with a government guarantor of last resort, and a largely 

private secondary market. 

In 2018, the U.S. Senate passed The Economic Grown, 

Regulatory Relief and Consumer Protection Act (S. 2155), 

which has emphasized providing regulatory relief for small 

banks and credit unions and amending the Dodd-Frank Act. 

Moreover, on June 12, 2017, the Department of the Treasury 

published a comprehensive report containing 

recommendations for the financial regulation of banks and 

credit unions (“A Financial System that Creates Economic 

Opportunities: Banks and Credit Unions”). 
UNITED STATES 

STAFF REPORT FOR THE 2018 ARTICLE IV CONSULTATION—

INFORMATIONAL ANNEX 

Prepared By The Western Hemisphere Department (in consultation with 

other departments) 

FUND RELATIONS ________________________________________________________________________ 2

STATISTICAL ISSUES ______________________________________________________________________ 4

CONTENTS 

 June 14, 2018 
UNITED STATES

2 INTERNATIONAL MONETARY FUND

FUND RELATIONS 

(As of April 30, 2018) 

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) 74,462.41 89.72 

 Reserve Tranche Position 8,540.17 10.29

 Lending to the Fund 

 New Arrangements to Borrow 3,773.36

 

SDR Department: SDR Million

Percent of 

Allocation

 Net cumulative allocation 35,315.68 100.00 

 Holdings 36,439.53 103.18

 

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 

 2018 2019 2020 2021 2022

 Principal 

 Charges/Interest 0.59 0.59 0.59 0.59

 Total 0.59 0.59 0.59 0.59

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 January 10, 2018. 
UNITED STATES

INTERNATIONAL MONETARY FUND 3

Article IV Consultation. The 2017 Article IV consultation was concluded on June 16, 2017 and the 

Staff Report was published as IMF Country Report No. 17/239. A fiscal Report of Observance of 

Standards and Codes was completed in the context of the 2003 consultation. The 2018 Article IV 

discussions took place in New York (April 25-27) and Washington D.C. (May 1-17). Concluding 

meetings with Chair Powell of the Board of Governors of the Federal Reserve System, and Treasury 

Secretary Mnuchin occurred on June 6 and June 7, respectively. The Managing Director, 

Ms. Lagarde, the Deputy Managing Director, Mr. Zhang, and WHD Director, Mr. Werner, participated 

in the concluding meetings. A press conference on the consultation was held on June 14, 2018. The 

team comprised Nigel Chalk (head), Yasser Abdih, Ali Alichi, Emanuel Kopp, Daniel Leigh, 

Suchanan Tambunlertchai, Peter Williams (all WHD), Celine Rochon and Russell Green (SPR). 

Mr. Mauricio Claver-Carrone (Executive Director), Ms. Patricia Pollard (Senior Advisor), and 

Mr. Stephan Vitvitsky (Advisor) attended some of the meetings. Outreach included discussions with 

Congressional staff, U.S. Chamber of Commerce, private sector representatives, and think tanks. 

Unless an objection from the authorities of the United States is received prior to the conclusion of 

the Board’s consideration, the document will be published. 

 
UNITED STATES

4 INTERNATIONAL MONETARY FUND

STATISTICAL ISSUES 

Statistical Issues. Comprehensive economic data are available for the United States on a timely 

basis. The quality, coverage, periodicity, and timeliness of U.S. economic data are adequate for 

surveillance. The United States adheres to the Special Data Dissemination Standard Plus and its 

metadata are posted on the Dissemination Standards Bulletin Board. 

United States: Table of Common Indicators Required for Surveillance 

(As of June 8, 2018)

 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

2018 M5 May 18 M M M 

Reserve/base money May 31 May 31 W W W 

Broad money May 31 May 31 W W W 

Central bank balance sheet May 30 May 31 W W W 

Interest rates3 Same day Same day D D D 

Consumer price index 2018 M4 May 10 M M M 

Revenue, expenditure, balance and 

composition of financing4—general 

government5

2018 Q1 May 30 Q Q Q

Revenue, expenditure, balance and 

composition of financing4—central 

government 

2018 M4 May 10 M M M 

Stocks of central government and central 

government-guaranteed debt 

2018 M4 May 4 M M M 

External current account balance 2018 Q1 May 30 Q Q Q

Exports and imports of goods and 

services 

2018 M4 May 11 M M M 

GDP/GNP (2nd release) 2018 Q1 May 30 Q M M 

Gross External Debt 2017 Q4 March 31 Q Q Q

International Investment Position6 2017 Q4 March 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 Mr. Mauricio Claver-Carone and 

Mr. Stephan Vitvitsky on United States

June 29, 2018

The U.S. economy is on an improved growth trajectory, supported by tax reform,

deregulation, and a pro-growth economic policy agenda that will raise U.S. productivity and 

strengthen labor force participation. Year-to-date economic indicators point to an economy 

that will expand by around 3.0 percent this year. Job growth has averaged approximately 

200,000 per month over the first half of this year. Unemployment has continued to decline 

and, at 3.8 percent in May, is the lowest since 1969. Business investment has accelerated

notably since late 2016, with year-over-year growth rising steadily over six consecutive 

quarters. Consumer sentiment remains buoyant and inflation has firmed, gradually climbing 

to levels at or near the Federal Reserve’s target. In this context, we agree with Fund’s staff

view that “the near-term outlook for the U.S. economy is one of strong growth and job 

creation.”

However, we significantly disagree with the IMF’s real GDP growth projections in 2020 and 

beyond, its potential GDP estimates, and its long-term fiscal projections. We believe that 

staff understate the positive longer-term impact of tax reform and deregulation. The tax 

reform’s lower corporate tax rate, temporary new investment expensing provisions, and 

deductions for pass-through businesses will boost business investment and, along with other

changes, catalyze more efficient capital allocation. Regulatory relief and other pro-growth 

initiatives will improve the business climate. Additionally, the Administration plans to 

reduce nondefense discretionary (NDD) spending over time that, together with a growing 

economy, will put the nation on a sounder fiscal path and reduce public debt as a share of

GDP. Altogether, the Administration’s economic policies will spur greater investment in

facilities and workers, boost productivity and wage growth, and draw more workers into the 

labor force. These deeper structural reforms will lift the U.S. economy to a higher sustained 

growth path. 

That said, we welcome Fund staff’s independent and candid views on the U.S. economy. 

Economic Projections: Our authorities expect real GDP growth to be 3.1 percent in 2018,

remaining slightly above 3.0 percent through 2020. Although the IMF’s projections for 2018
and 2019 (2.9 and 2.7 percent) are slightly lower than ours, we broadly agree with Fund staff 

views on the near-term economic outlook. 

Fund staff project much lower growth from 2020 onwards, in large part due to the temporary 

nature of some of the tax provisions. We believe that the Fund’s model underestimates the 

longer-term growth effect of the new tax law by focusing on its fiscal mechanics rather than 

the structural change. According to staff, the key features of the bill are “fiscal stimulus” in 

the early years followed by “fiscal tightening” in later years. 

This approach misses the purpose of the tax reform, which is to promote structural changes 

that boost economic growth. The effect of tax cuts, temporary full expensing provisions, and 

regulatory relief comes from businesses responding to the policy changes. The tax cuts and 

temporary full expensing provision will incentivize large-scale capital investment, which will 

boost the quantity and quality of the overall capital stock. The Administration’s 

infrastructure investment plans will also substantially improve the capital stock over time. 

Finally, the Administration’s deregulation agenda – aimed at increasing dynamism in the 

community banking sector, the energy sector, and labor markets – will interact with higher 

quality human and physical capital to lead to a sustained increase in productivity growth. 

Lowering the corporate tax rate also provides incentives for managers to focus more on 

creating profitable businesses, deepening the private capital stock, and investing in their work 

forces. The new law also provides smaller pass-through businesses with up to a 20 percent 

tax deduction, helping them compete with big companies and enhancing their ability to hire 

and train workers new to their industry. Altogether, these changes will raise productivity 

growth and strengthen labor force participation, counter the effect of demographic changes, 

and enhance human capital.

Fiscal Policy: Anchored by tax reform, our fiscal policy strategy supports growth and is 

oriented to address medium-term challenges. The Administration’s budget priorities also aim 

to better control federal spending, particularly NDD expenditures, while allocating greater 

federal outlays for defense and supporting greater infrastructure spending. The December 

2017 comprehensive personal and corporate tax reform was the most significant reform since 

1986. Core elements of the tax plan include the following: 

 A reduction in the U.S. corporate tax rate from 35 percent to 21 percent. For many

years, the United States had the highest corporate tax rate among major economies,

which discouraged investment in the United States. The 21 percent rate is slightly

below the OECD average and is not a “race to the bottom.” Instead, since the new

rate is accompanied by tax reform and changes in international tax provisions, it

could stimulate a race to better policies globally.

 The alignment of the U.S. international tax system with the territorial systems of most

U.S. trading partners and implementation of many recommendations from the G-20/

OECD BEPS project, consistent with the theme of combating stateless income.

2
 Imposition of a U.S. tax on low-taxed excess earnings of controlled foreign

corporations of U.S. parented groups on which U.S. tax was previously deferred, as

well as limitation of base erosion via interest and other deductible payments, both of

which are consistent with BEPS goals.

 Simplification of the personal tax system and temporarily lowering marginal tax rates

across all income levels, with the largest benefits for the middle class. The bill also

reforms the burdensome Alternative Minimum Tax, almost doubles the standard

deduction, and bolsters the child credit system to support working families.

The FY 2019 Budget projects a deficit of 4.7 percent of GDP in FY 2019, a moderate 

increase from the estimated 4.2 percent of GDP for FY 2018. Over the ten-year budget 

window, the Administration’s proposals aim to reduce NDD spending by over 40 percent in 

real terms, and restrain spending in mandatory programs, including by reforming health care. 

We recognize these objectives will require considerable effort.

3
Additionally, the Administration’s infrastructure plan adds $200 billion in federal spending

over FY 2019-2028, aimed at generating $1.5 trillion in overall public and private

investment. Of the $200 billion in the infrastructure initiative, $100 billion will create an

Incentives Program that matches states/localities up to 20 percent for new dedicated revenue

streams for qualified infrastructure investments. These measures will improve the U.S.

overall capital stock and thereby boost potential growth. Higher growth will fuel higher

government revenues, which, coupled with a decline in NDD spending, will put the headline

deficit on a downward path as a percent of GDP. 

Monetary Policy: The Federal Reserve continues to make progress toward its goal of

maximum employment and price stability. The labor market has continued to strengthen,

with the unemployment rate falling to 3.8 percent in May from 4.3 percent a year earlier. Job

gains have been strong in recent months, while wage growth has moderately increased. 

Broad measures of labor market slack have also fallen, though the degree of slack remains

somewhat inconclusive.

Inflation has moved up from a year ago, with personal-consumption expenditure inflation

close to the Federal Open Market Committee’s (FOMC) target of 2.0 percent. The FOMC

judges that the economy will continue to expand at a moderate pace over the medium-term

and that labor market conditions will remain strong. Inflation is expected to run near the

FOMC’s 2.0 percent objective over the medium-term, and risks to the economic outlook

appear balanced.

The FOMC expects that improving economic conditions will warrant further gradual federal

funds rate increases to sustain a healthy labor market and stabilize inflation around its target. 

According to the FOMC, the stance of policy remains accommodative. At the same time, the

FOMC has repeatedly stated that the monetary policy path is not on a preset course and will

remain data dependent. The FOMC remains committed to clear policy communication. 

Furthermore, the FOMC began implementing a balance sheet normalization program last fall. 

The approach has been well-communicated and has been implemented in a regular and

predictable manner. The balance sheet is not intended to be an active tool for monetary

policy in normal times, while the FOMC is prepared to adjust the details of its approach to

policy normalization considering economic and financial developments.

Financial Regulation: The President recently signed the Economic Growth, Regulatory

Relief, and Consumer Protection Act. This legislation modernizes and recalibrates financial

regulation to help banks, particularly community and regional banks, more efficiently and

effectively allocate capital to businesses and consumers. This bill strikes the appropriate

balance between addressing risks to the financial system and facilitating economic growth. 

More broadly, we believe that the U.S. financial system is on strong footing, with moderate

financial stability risks. Most large U.S. banks remain well-capitalized and highly liquid, and

reliance on short-term wholesale funding has continued to decline. Higher valuation pressure

across a range of asset markets has not been accompanied by increased leverage in the

4
financial sector. Recent financial market volatility has not materially impacted financial

sector soundness, and large financial institutions are well positioned to absorb further

financial market stress should it materialize. 

Trade/External Sector: The United States has one of the most open trade policy regimes

and economies in the world. We seek to promote fair and reciprocal trade, and to press for a

level playing field for U.S. firms. Importantly, the Administration believes that all countries

should remove barriers to trade.

However, the Administration has clearly articulated that the United States will no longer

accept being in a position in which the unfair practices of our trading partners harm U.S.

firms and workers. To that end, policies are intended to address circumstances where

injurious market distortions have occurred; where critical U.S. national security concerns are

relevant; or where the playing field for U.S. firms and workers is otherwise not level.

The Administration’s trade policy agenda seeks to address serious, long-term challenges that

have been facing the multilateral trading system. We strongly disagree with Fund staff’s

assessment that our recent trade measures would move the globe further from an open, fair,

and rules-based trade system. Instead, the Administration’s trade policies seek to move the

global economy closer to a free, fair, and reciprocal trading system.

Competition Policy: We note Fund staff’s focus on competition issues and policy in the

United States, which we believe deserve academic attention by the relevant experts At the

same time, we disagree with staff’s approach to the topic and their conclusions. Evidence

pointing to a broad trend in increased market power is inconclusive. We note that this is a

developing literature, and not all researchers have found the markups to be trending upward. 

Further, analysis on higher estimated markups does not necessarily provide a reliable

measure of market power. A higher estimated markup also could be the result of costs being

driven down, with some portion of the marginal cost savings passed through to consumers. 

Moreover, the relationship between higher markups and competition policy is unclear,

making it difficult to define any policy implications, including staff’s recommended tax

scheme. We do not see a strong economic argument for imposing a tax that could discourage

firms from lowering their costs to their own benefit and that of their customers.

5