© 2017 International Monetary Fund

IMF Country Report No. 17/239

UNITED STATES

2017 ARTICLE IV CONSULTATION—PRESS RELEASE; 

STAFF REPORT

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

with members, usually every year. In the context of the 2017 Article IV consultation with 

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

package:

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

July 24, 2017 consideration of the staff report that concluded the Article IV

consultation with the United States.

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

consideration on July 24, 2017, following discussions that ended on June 16, 2017,

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

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

completed on July 7, 2017.

• An Informational Annex prepared by the IMF staff.

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

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

other documents.

Copies of this report are available to the public from

International Monetary Fund • Publication Services

PO Box 92780 • Washington, D.C. 20090

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

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

Price: $18.00 per printed copy

International Monetary Fund

Washington, D.C.

July 2017
Press Release No. 17/301 

FOR IMMEDIATE RELEASE 

July 27, 2017 

IMF Executive Board Concludes 2017 Article IV Consultation with the United States

On July 24, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the 

Article IV consultation with the United States.1

The United States is in the longest expansion since 1850. The unemployment rate has fallen to 

4.4 percent and job growth continues to be strong. The economy has gone through a temporary 

growth dip in the early part of this year but momentum has picked up and the economy is 

expected to grow at 2.1 percent this year and next, modestly above potential, supported by solid 

consumption growth and a rebound in investment. 

Labor market indicators suggest that the economy could be effectively at full employment. 

Inflation has remained subdued and, indeed, has weakened moderately in recent months. Wage 

indicators have shown a modest acceleration. Over the next 12–18 months personal consumer 

expenditure (PCE) inflation is expected to slowly rise above 2 percent, before returning to the 

Federal Reserve’s medium-term target of 2 percent.

There are two-sided risks to the growth outlook. A medium-term path of fiscal consolidation, 

such as the expenditure based consolidation proposed in the budget, would address medium-term

fiscal imbalances but result in a growth rate that is below staff’s baseline. On the upside, 

spending reductions could be less ambitious and tax reforms could lower federal revenues, 

providing stimulus to the economy and raising near-term growth.

Over the longer term and despite the ongoing expansion, the United States faces a confluence of 

forces that may weigh on the prospects for continued gains in economic wellbeing. Secular 

structural shifts are occurring on multiple fronts including technological change that is reshaping

the labor market, low productivity growth, rising skills premia, and an aging population. If left 

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

gains in living standards, and worsen poverty. 

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
The consultation focused on the policies needed to raise productivity and labor force 

participation, reduce poverty and income polarization, and help restore the economy’s 

adaptability and dynamism. 

Executive Board Assessment2

Executive Directors agreed with the thrust of the staff appraisal. They commended the strong 

performance of the U.S. economy, including a rebound in growth, improved consumer 

confidence, low unemployment, and steady job increases. At the same time, they noted that the 

favorable near-term outlook is clouded by important medium-term challenges, including rising 

public debt, potential growth below historical averages, declining labor force participation, and 

income growth that is not broadly shared. Against this background, Directors welcomed the 

authorities’ goal to raise productivity and competitiveness, and underscored the importance of 

further clarity regarding the authorities’ policy plans. 

Directors noted that the economy is close to full employment and inflation is near the Federal 

Reserve’s price stability mandate of 2 percent. They agreed that policy rates should continue to 

rise gradually, and the increases should continue to be data-dependent. Directors noted that 

well-communicated plans for unwinding the Federal Reserve’s holdings of securities have been 

important in ensuring a smooth normalization of U.S. monetary policy, and welcomed the recent 

addendum to the policy normalization principles and plans. In this context, Directors highlighted 

the need to be mindful of potential global spillovers as normalization proceeds. 

Directors agreed that addressing the medium-term challenges will require measures on various 

fronts. Reforms should include building a more efficient tax system; establishing a more 

effective regulatory system; raising infrastructure spending; improving education and developing 

skills; strengthening healthcare coverage while containing costs; offering family-friendly 

benefits; maintaining a free, fair, and mutually beneficial trade and investment regime; and 

reforming the immigration and welfare systems. Directors noted that the authorities’ objectives 

are broadly aligned with these priorities. 

Directors considered that such a reform package could raise productivity, labor supply, and 

investment, and ultimately improve living standards. While such a plan requires changes in fiscal 

spending and revenue priorities, measures need to be subsumed under a gradual but steady fiscal 

consolidation path, in view of elevated public debt and deficit levels, and public spending 

pressures from population aging and rising interest rates. Many Directors urged the authorities to 

ensure that tax reform leads to an increase in the revenue-to-GDP ratio and that the burden of 

fiscal adjustment does not fall disproportionately on low- and middle-income households. 

 

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.
Directors observed that the financial system is generally healthy. They urged the authorities to 

monitor closely the rising vulnerabilities in corporate and household credit markets, and 

implement the remaining recommendations of the 2015 Financial Sector Assessment Program. 

Directors noted that important gains have been made since the global financial crisis in 

strengthening the financial oversight structure. They concurred that some aspects of the system 

can be finetuned and the regulatory structure simplified, as has been proposed by the authorities. 

Directors emphasized, however, that the thrust of the current risk-based approach to regulation, 

supervision, and resolution should be preserved to safeguard financial stability while facilitating 

economic growth. In this connection, they welcomed the authorities’ commitment to maintain a 

leading role in financial regulatory discussions in international forums 

 
United States: Selected Economic Indicators 1/

(percentage change from previous period, unless otherwise indicated)

 Projections 

 2016 2017 2018 2019 2020 2021 2022 

National production and income 

Real GDP 1.6 2.1 2.1 1.9 1.8 1.7 1.7 

Net exports 2/ -0.1 -0.3 -0.2 -0.2 -0.2 -0.1 0.0 

Total domestic demand 1.7 2.3 2.3 2.0 1.8 1.7 1.7 

Private final consumption 2.7 2.2 1.9 2.0 2.0 1.9 1.8 

Public consumption expenditure 0.8 0.5 1.4 1.4 0.8 0.7 0.3 

Gross fixed domestic investment 0.7 4.3 4.0 2.9 2.4 2.6 2.4 

Private fixed investment 0.7 4.7 3.9 2.8 2.3 2.5 2.6 

Equipment and software -2.9 3.6 4.9 3.2 2.3 2.6 2.5 

Intellectual property products 4.7 4.1 3.8 3.6 4.0 4.0 4.6 

Nonresidential structures -2.9 6.4 2.5 1.2 0.3 0.6 0.5 

Residential structures 4.9 5.5 3.6 2.3 2.0 2.0 2.0 

Public fixed investment 0.8 2.9 4.0 3.4 2.7 2.9 1.8 

Change in private inventories 2/ -0.4 0.0 0.0 -0.1 0.0 -0.1 -0.1 

Nominal GDP 3.0 3.9 3.9 4.1 3.9 3.8 3.7 

Personal saving rate (% of disposable 

income) 5.7 5.1 5.3 5.2 4.9 4.8 4.7 

Private investment rate (% of GDP) 16.3 16.7 17.0 17.0 17.0 17.0 17.1 

Unemployment and potential output 

Unemployment rate 4.9 4.3 4.3 4.4 4.7 4.9 5.0 

Labor force participation rate 62.8 62.9 62.9 62.7 62.4 62.2 61.9 

Potential GDP 1.6 1.8 1.9 1.8 1.8 1.8 1.7 

Output gap (% of potential GDP) -0.4 -0.1 0.1 0.2 0.2 0.1 0.0 

Inflation 

CPI inflation (q4/q4) 1.8 2.1 2.5 2.6 2.1 2.2 2.3 

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

PCE Inflation (q4/q4) 1.4 1.7 2.2 2.3 1.8 1.9 2.0 

Core PCE Inflation (q4/q4) 1.7 1.7 2.0 2.2 2.0 2.0 2.0 

GDP deflator 1.3 1.8 1.8 2.1 2.1 2.0 1.9 

Interest rates (percent) 

Fed funds rate 0.4 1.0 1.6 2.5 2.9 2.9 2.9 

Three-month Treasury bill rate 0.3 1.0 1.5 2.4 2.7 2.7 2.7 

Ten-year government bond rate 1.8 2.4 2.9 3.5 3.5 3.5 3.5 

Balance of payments 

Current account balance (% of GDP) -2.4 -2.5 -2.9 -3.0 -3.0 -2.9 -2.8 

Merchandise trade balance (% of GDP) -4.1 -4.4 -4.6 -4.8 -4.9 -4.9 -5.1 

Export volume (NIPA basis, goods) 0.6 4.1 3.2 4.2 2.8 3.1 4.0 

Import volume (NIPA basis, goods) 0.7 4.9 4.5 4.7 3.7 3.5 3.7 

Net international investment position (% 

of GDP) -44.8 -44.5 -45.7 -46.9 -48.2 -49.3 -50.3 

Saving and investment (% of GDP) 

Gross national saving 18.5 17.7 17.6 17.4 17.4 17.6 17.8 

General government -1.8 -1.6 -1.3 -1.4 -1.4 -1.5 -1.6 

Private 20.2 19.3 18.9 18.8 18.9 19.1 19.4 

Personal 4.3 3.8 4.0 3.9 3.6 3.6 3.6 

Business 15.9 15.5 14.9 14.9 15.2 15.6 15.9 

Gross domestic investment 19.7 20.1 20.4 20.4 20.4 20.5 20.6 

Private 16.3 16.7 17.0 17.0 17.0 17.0 17.1 

Public 3.3 3.4 3.4 3.4 3.5 3.5 3.5 

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

1/ Components may not sum to totals due to rounding.

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

STAFF REPORT FOR THE 2017 ARTICLE IV CONSULTATION

KEY ISSUES

Diagnosis. The U.S. is in its third longest expansion since 1850, job growth has been 

persistently strong, inflation is subdued, and the economy is effectively at full 

employment. However, like many other advanced economies, the U.S. is confronting

secular shifts on multiple fronts. These include technological change that is reshaping 

labor and product markets, low productivity growth, rising skills premia, and an aging 

population. Even with high per capita income and one of the most flexible, competitive, 

and innovative economies in the world, the U.S. model appears to be having difficulties 

adapting to these changes. Most critically, relative to historical performance, growth has 

been too low and too unequal. The challenge for the U.S. administration is to realign 

policies to raise productivity and labor force participation, reduce poverty and income 

polarization, and help restore the economy’s adaptability and dynamism.

Policy recommendations. 

• Fiscal policy should be calibrated to achieve a sustained but gradual reduction in

the general government deficit, starting with the upcoming FY2018 budget. Doing

so would ensure the public debt-GDP ratio declines through the medium-term.

• Monetary policy. The pace of future increases in the federal funds rate can be

gradual, especially when compared with previous tightening cycles, and should

certainly be data dependent. The recent addendum to the policy normalization

principles and plans provides market participants with a clear path for changes in

reinvestment policy that will help avoid undue volatility in fixed income markets.

• Tax reform. The U.S. personal and business tax system needs to be simpler and less

distortionary, with lower tax rates and fewer exemptions. The redesign of the tax

system should aim to raise labor force participation, mitigate income polarization

and support low- and middle-income households. Given the unfavorable debt

dynamics and the resources needed to strengthen the supply side, tax reform ought

to be designed to be revenue enhancing over the medium term.

• Infrastructure. There is a need for a significant increase in public spending on

maintenance, repair and new infrastructure projects.

• Trade. Greater trade integration, particularly in growth areas such as services, offers

important gains to the U.S. with positive spillovers for the global economy.

July 7, 2017
UNITED STATES

2 INTERNATIONAL MONETARY FUND

• Financial regulation. Important gains have been made in strengthening the financial oversight 

structure since the global financial crisis. There is scope to fine-tune some aspects of the system 

while preserving the current risk-based approach to regulation, supervision, and resolution. 

• Deregulation. A simplification and streamlining of federal regulations as well as harmonizing

rules across states would likely boost efficiency and could stimulate job creation and growth. 

Care is needed to avoid negative consequences for the environment, workplace safety, and 

protections for lower-income workers. 

• Maintaining a productive and flexible workforce. Measures should include improving 

educational opportunities and outcomes, offering childcare support for low- and middle-income 

families, introducing paid family leave, expanding the earned income tax credit, increasing the 

federal minimum wage, designing better social assistance programs for the poor, protecting 

recent gains in healthcare coverage and containing healthcare cost inflation. A skills-based 

immigration system would enhance labor participation and productivity as well as ameliorate 

medium-term fiscal imbalances.

Approved By

Nigel Chalk (WHD) 

and Tam Bayoumi 

(SPR)

Discussions took place in Minneapolis (March 29–31), New York 

(April 25–27), and Washington, D.C. (May 23–June 16). Concluding 

meetings were held with Secretary Mnuchin and Chair Yellen on June 20. 

The team comprised N. Chalk (Head), Y. Abdih, A. Alichi, S. Danninger, 

E. Kopp, A. Pescatori, D. Puy (all WHD); K. Eckhold, D. King and C. Wilson 

(MCM); C. Rochon, S. Lizarazo and E. Van Heuvelen (SPR); T. Matheson and 

A. Peralta (FAD). The team was supported by P. Delgado Pino, 

U. Rosenhand, and P. Williams.

CONTENTS

AN ECONOMY THAT IS AT FULL EMPLOYMENT_______________________________________________ 5

A WIDE RANGE OF RISKS AROUND THE BASELINE __________________________________________10

AN ECONOMY THAT IS FAILING TO RAISE LIVING STANDARDS ____________________________14

THE RIGHT MACROECONOMIC POLICY MIX__________________________________________________20

A. A Sustained and Balanced Medium-term Fiscal Consolidation________________________________ 20

B. A Gradual and Well Communicated Monetary Normalization_________________________________ 23
UNITED STATES

INTERNATIONAL MONETARY FUND 3

STRENGTHENING THE FOUNDATIONS FOR GROWTH AND RESILIENCE____________________25

A. Tax Policy _____________________________________________________________________________________ 25

B. Improving Infrastructure ______________________________________________________________________ 27

C. Financial Regulation __________________________________________________________________________ 30

D. Trade _________________________________________________________________________________________ 33

E. Deregulation __________________________________________________________________________________ 34

MAINTAINING A PRODUCTIVE AND FLEXIBLE WORKFORCE ________________________________35

A. Education _____________________________________________________________________________________ 35

B. Family-Friendly Benefits_______________________________________________________________________ 36

C. Supporting Low- and Middle-Income Households____________________________________________ 37

D. Immigration __________________________________________________________________________________ 37

E. Healthcare ____________________________________________________________________________________ 38

STAFF APPRAISAL______________________________________________________________________________39

BOXES

1. Cyber Risks to Financial Stability ______________________________________________________________ 12

2. Understanding the U.S. Labor Productivity Decline: A State-Level Perspective ________________ 15

3. Explaining the Declining Labor Share of Income in the U.S. ___________________________________ 18

4. Drivers of U.S. Income Polarization—Evidence from the States________________________________ 19

5. The Dynamic Distributional Effects of Tax Reform: A Heterogenous Agent Model ____________ 28

FIGURES

1. Recent Developments__________________________________________________________________________ 6

2. Corporate Leverage ____________________________________________________________________________ 9

TABLES

1. Selected Economic Indicators _________________________________________________________________ 41

2. Balance of Payments __________________________________________________________________________ 42

3. Federal and General Government Finances ___________________________________________________ 43

4. Core FSIs for Deposit Takers __________________________________________________________________ 44
UNITED STATES

4 INTERNATIONAL MONETARY FUND

ANNEXES

I. External Sector Assessment ____________________________________________________________________ 45

II. Public Debt Sustainability Analysis ____________________________________________________________ 47

III. Implementation of FSAP Recommendations__________________________________________________ 54

IV. Response to Past Policy Advice_______________________________________________________________ 77
UNITED STATES

INTERNATIONAL MONETARY FUND 5

AN ECONOMY THAT IS AT FULL EMPLOYMENT

1. The U.S. economy is in its third longest expansion since 1850. Real GDP is now 12 

percent higher than its pre-recession peak, and job growth has been persistently strong. The first 

quarter was weighed down by what appears to be a transitory slowdown in consumer demand. 

However, business and consumer confidence indicators are strong, and the labor market is healthy,

making it likely that both investment and consumption will grow steadily in the coming quarters

(Figure 1).

2. Given the significant policy 

uncertainty, staff’s macroeconomic forecast 

uses a baseline assumption of unchanged 

policies. The forecast neither builds in the 

effect of tax reform nor the expenditure 

reductions proposed in the administration’s 

budget. Under this forecast, growth is expected 

to rise modestly above 2 percent this year and 

next, driven by continued consumption growth 

and a cyclical rebound in private investment. 

Growth is forecast to subsequently converge to the underlying potential growth rate.

3. Financial conditions remain very supportive of growth. Term premia are negative 

(around the same levels as 12 months ago), the dollar is moderately stronger, corporate bond 

spreads have compressed, and equity markets have registered significant gains with a very low 

pricing of volatility. Survey indicators suggest that there is a relatively abundant supply of credit to 

both households and corporates. 

4. While there are measurement uncertainties, 

the U.S. economy appears to be back at full 

employment. The unemployment rate has been at, or 

below, 5 percent for the past 18 months. The tightening 

labor market is drawing detached workers back into the 

labor market and starting to put upward pressure on 

wages (particularly for those that are switching jobs). Labor 

force participation has improved modestly, and measures 

of capacity utilization have returned to pre-crisis levels. 

Although there are sizable measurement uncertainties, it 

appears that economic slack has been virtually exhausted,

and GDP is expected to rise above potential in 2017Q3. 

Unemployment

Rate (UR)

Quits

Layoffs

Openings

Hires

Long term UR

Invol. part-time

U6

December 2009 Average 2005-2006 Latest

Labor Market Slack 1/

Sources: Haver Analytics; and IMF staff calculations

1/ Closer to the center signifies less labor market slack
UNITED STATES

6 INTERNATIONAL MONETARY FUND

Figure 1. Recent Developments

Consumer confidence and small business optimism 

increased after the election...

...suggesting robust consumption growth ahead, 

despite a weak outturn in Q1.

After a prolonged deleveraging, the housing sector is 

showing healthy growth.

Financial conditions are looser than in 2016 and are 

supportive of investment.

Business fixed investment is strengthening including 

with a rebound in energy sector capital spending.

Notwithstanding U.S. dollar strength, trade has been 

a relatively minor drag on growth.

Sources: Autodata; BEA; Census; Conference Board; FRB; ISM; NFIB; Haver Analytics; and IMF staff calculations.

95

105

115

125

135

90

93

96

99

102

105

108

2016M1 2016M5 2016M9 2017M1

Sentiment (index, 1986=100)

Consumer confidence

(1985=100, RHS)

NFIB: small business 

optimism (1986=100, LHS)

16

17

18

19

96

100

104

108

112

116

2016M1 2016M5 2016M9 2017M1

Total vehicle sales (SAAR; million units, RHS)

Retail & food excl. motor vehicles (LHS)

Wholesale sales of nondurable goods (LHS)

Retail and Wholesale Sales (2016M1=100)

8

10

12

14

16

80

100

120

140

160

2000 2002 2004 2006 2008 2010 2012 2014 2016

House prices (real index, 2009=100)

Household debt (2009 US$ trillions, rhs)

House Prices and Household Debt

-40

-20

0

20

40

60

80

100

-40

-20

0

20

40

60

80

100

2005 2007 2009 2011 2013 2015 2017

Loan Officer Survey (percent tightening)

C&I loans to 

small firms

C&I loans to large 

and medium firms

Commercial and

Real Estate loans

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1

Investment (contribution to growth, %pts)

Nonresidential, excl. oil

Oil

Residential

-2

-1

0

1

2

80

85

90

95

100

105

2012 2013 2014 2015 2016 2017

REER and Net Exports

Net Exports Contribution to Growth

(%pts, saar)

Broad Trade-weighted REER

(1973M3=100, LHS)
UNITED STATES

INTERNATIONAL MONETARY FUND 7

5. Inflation is gradually heading toward the Federal Reserve’s medium-term objective. 

However, sizable negative shocks to core inflation occurred over the past few months—linked to cell 

phone prices and prescription drugs—which may be transitory but still give rise to downside risks to 

the inflation outlook. Survey expectations of medium-term inflation are reasonably well anchored

but market-based measures of inflation expectations have drifted down. Under staff’s baseline, core 

inflation is expected to rise modestly above 2 percent in 2019 and subsequently approach the Fed’s 

medium-term target from above. 

6. The financial system appears generally healthy but there are rising vulnerabilities in 

some areas. The capital position of U.S. banks is strong, and bank asset quality continues to be 

good as evidenced by the results of the Federal 

Reserve’s most recent Comprehensive Capital 

Analysis and Review. Over the past year, money 

market fund reform—that required institutional 

funds to have a floating net asset value and allowed 

them to impose liquidity fees and redemption 

gates—led investors to smoothly rotate more than 

US$1 trillion out of prime funds (holding 

commercial paper) and into government bond 

funds. Strains in the energy sector from lower oil 

prices have been absorbed (despite defaults on 

around US$50 billion in energy debt in 2016) 

although deleveraging and reorganization in the sector is still ongoing. However, there are areas of 

concern: 

0

1

2

3

4

0

1

2

3

4

2011 2012 2013 2014 2015 2016 2017

Sources: SEC, OFR.

Prime

Government

Tax Exempt

U.S. MMFs' Investment (US$ trillions) 

1

2

3

4

1

2

3

4

2010 2011 2012 2013 2014 2015 2016

Wage Growth (percent, y/y)

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

Average hourly earnings

Employment cost index, wages and salaries

Sources: BLS; FRB; and Haver Analytics

-4

-3

-2

-1

0

1

2

3

-4

-3

-2

-1

0

1

2

3

2010Q1 2012Q1 2014Q1 2016Q1 2018Q1 2020Q1

Headline PCE

Output Gap

(percent of potential)

Sources: BEA; Haver Analytics; and IMF staff estimates

Projection

Core PCE

Inflation and Output Gap (percent, y/y)
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8 INTERNATIONAL MONETARY FUND

• Corporate credit. Leverage is rising in parts of the non-energy corporate sector, and there is 

some evidence of a steady erosion of underwriting standards in the corporate bond market

(Figure 2). In addition, structural shifts in bricks-and-mortar retail are leaving some companies 

struggling to adjust, with knock-on 

implications for parts of retail real estate. 

• Household credit. Potential risks that warrant 

increased attention include those embedded in 

the rapid growth in auto lending (particularly 

to higher risk borrowers) and in student loans.

• Equity markets. Equity valuations remain high, 

and the price-earnings ratio is well above its 

long-term average. A significant equity price 

decline would feed through balance sheets and 

have significant wealth effects. 

7. While progress has been made in some areas, a number of the shortcomings in 

financial stability oversight that were highlighted in the 2015 FSAP remain unaddressed (see 

Annex III). These include data blind spots (especially for nonbanks) that preclude a full 

understanding of the nature of financial system risks, residual vulnerabilities in repo markets and 

money market funds, the absence of harmonized national standards or consolidated supervision for 

insurance companies, the complex institutional structure for financial regulation, a housing finance 

system that remains in limbo with little progress in reforming the government sponsored 

enterprises, and an incomplete picture of financial interlinkages and interconnections within the 

financial system. There is also a continuing need to remove impediments to data sharing among 

regulatory agencies.

8. The U.S. external position is moderately weaker than implied by medium-term 

fundamentals and desirable policies (see Annex I). The current account deficit has narrowed from 

its pre-crisis levels owing to higher private saving and lower investment in the aftermath of the

0

10

20

30

40

500

1000

1500

2000

2500

3000

2008 2010 2012 2014 2016

Equity Market Valuation

Corporate profits after tax (US$ billions)

S&P 500 Index (level)

Shiller C.A.P.E. (ratio, rhs)

Long-term average C.A.P.E. (ratio, rhs)

Sources: FRED, Robert Shiller

-60

-50

-40

-30

-20

-10

0

-4

-3

-2

2010 2012 2014 2016 2018 2020 2022

International Imbalances

(Percent of GDP)

Current account 

NIIP (RHS)

Source: IMF staff estimates.

90

95

100

105

110

115

120

125

130

70

75

80

85

90

95

100

105

110

2010 2011 2012 2013 2014 2015 2016 2017

Effective Exchange Rates

Broad Trade-weighted REER

(1973M3=100, LHS)

Broad Trade-weighted NEER

(1973M3=100, RHS)
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INTERNATIONAL MONETARY FUND 9

Figure 2. Corporate Leverage

Nonfinancial corporate leverage has risen slowly... ...driven largely by energy firms. 

Borrowing has been at low cost and longer 

durations.

Delinquencies remain very low. Recent C&I loan 

delinquency increases were largely energy related.

The share of vulnerable non-energy firms is below 

historical averages.

Forward-looking default probabilities are generally 

low with a significant fall in the energy sector. 

Sources: Federal Reserve Board, Moody’s KMV, GFSR, BAML, Haver.

20

60

100

140

20

60

100

140

2007 2009 2011 2013 2015

Debt Outstanding (Percent of SAAR GDP)

Nonfinancial Corporations

Households and nonprofits

General government

Financial institutions

0

20

40

60

0

20

40

60

2003 2005 2007 2009 2011 2013 2015 2017

Market Leverage (Debt to Market Value, percent)

Utilities Firms

Energy Firms

A-rated Corporates

BAA2-rated corporates

4

5

6

7

4

5

6

7

2000 2002 2004 2006 2008 2010 2012 2014 2016

Weighted Average Bond Durations (years)

Composite of Investment 

Grade and High Yield

0

2

4

6

8

10

12

14

0

2

4

6

8

10

12

14

1991 1994 1997 2000 2003 2006 2009 2012 2015

Delinquency Rates (Percent)

Source: Federal Reserve. 

C&I Loans

Residential and Real Estate

All Loans

Commercial Real Estate

0

10

20

30

0

10

20

30

1996 1999 2002 2005 2008 2011 2014

Real estate Utilities Others IT

Non-energy Firms with ICR<2 

(Percent of assets)

0

4

8

12

16

20

0.0

0.5

1.0

1.5

2.0

2008 2010 2012 2014 2016

A rated

Expected Default Probabilities (Percent)

BA rated

Energy sector (rhs)
UNITED STATES

10 INTERNATIONAL MONETARY FUND

financial crisis and is expected to remain close to 3 percent of GDP over the medium term. The 

international investment position shows a growing net liability that currently amounts to 43 percent 

of GDP, reflecting sustained current account deficits and valuation differentials between U.S. and 

overseas assets (including those linked to the recent appreciation of the U.S. dollar). The real 

effective exchange rate has appreciated 4 percent over the past 12 months but is up by around 20 

percent since end-2013. This leaves the U.S. dollar moderately overvalued, by around 10–20 percent.

A WIDE RANGE OF RISKS AROUND THE BASELINE

9. Significant policy uncertainties imply larger-than-usual, two-sided risks to near-term 

growth. On the one hand, a medium-term path of fiscal consolidation, such as the expenditure 

based consolidation proposed in the budget, would address medium-term fiscal imbalances but 

result in a growth rate that is below staff’s baseline. Such an adjustment is likely to also have 

negative implications for the income distribution. On the other hand, spending reductions could be 

less ambitious, and tax reforms could lower federal revenues, provide stimulus to the economy, and 

raise near-term growth (and possibly potential growth). However, the latter policy mix would have 

negative implications for debt sustainability, worsen the overvaluation of the U.S. dollar, and 

increase current account and NIIP imbalances (see Risk Assessment Matrix). 

10. Over the medium-term, a broader retreat from cross-border integration represents 

an important downside risk to trade, sentiment, and growth. Such an evolution of policy may 

manifest itself in a more contentious or inward-looking approach to trade and investment. 

Alternatively, restraining inward immigration could exacerbate labor force constraints implied by an

aging demographic. There is also a risk that a very divided political system may stall the 

administration’s agenda and/or create increased policy uncertainty, impeding progress on the policy 

changes needed to strengthen productivity, labor force participation, and investment.

11. There are negative risks to the inflation outlook. To date, progress toward the Fed’s 

medium-term inflation goal has been slow, with previous upswings in core inflation having stalled. 

Further, bottom-up estimates of core inflation (see Abdih et al. 2016) suggest it will be a challenge 

to break inflation out of its post-crisis range. Finally, changing dynamics in the U.S. labor market and 

in technology, that are at this point not fully understood, may mean that the expected pick-up in 

nominal wages and prices could prove elusive. Recent inflation outturns raise the risk that there may 

be a more-than-transitory headwind to the upward path of core inflation. There is a risk that there 

are nonlinearities in the Phillips curve that could push inflation higher if unemployment falls further

below the natural rate. However, there is, at best, weak empirical evidence of nonlinearities in either 

aggregate or disaggregated versions of the wage or price Phillips curve.
UNITED STATES

INTERNATIONAL MONETARY FUND 11

12. Cyber risks to the financial system are on the rise and potentially systemic. Risks to 

financial stability from cyber-crimes are a growing concern and have been flagged several times in 

the annual reports of the Financial Stability Oversight Council (FSOC). Market solutions to limit risks 

are hampered by information asymmetries and externalities (Box 1). The U.S. is steadily improving its 

regulatory framework to strengthen the resilience of the financial system. Nevertheless, the lack of a 

comprehensive picture and the fast-evolving nature of these vulnerabilities make any assessment of 

the size of systemic risks and their potential economic costs highly uncertain.

13. Authorities’ views. There are significant upside risks to the outlook driven by the planned 

changes in policies. Sustainably increasing growth to 3 percent is a challenging but feasible 

objective and will help draw in more workers to quality employment who have been left detached 

from the labor market. The right combination of tax reform, deregulation, and a fairer global trading 

system would encourage business investment, job creation, and allow the U.S. to remain a world 

leader in technology and productivity. Further, a significant reduction in federal non-defense 

spending would allow the burden of a high and rising public debt to be lifted off the economy. 

Valuations in financial markets are at high levels, the market pricing of volatility is low, and the term 

premium remains compressed. Nonetheless, financial stability risks are manageable, a reflection of 

the stronger regulation and supervisory structure that had been built in the past several years. Cyber 

risks constitute one of the largest and most pervasive risks facing the U.S. Efforts will be increased to 

protect federal networks and critical infrastructure as well as strengthen public private partnerships 

to enhance resiliency through the promotion of information sharing, best practices, and effective 

response and recovery efforts. The administration is also working on an international engagement 

strategy for cybersecurity to enhance coordination with partners in protecting against malicious 

actors, promoting a secure and resilient financial system, and safeguarding an open and secure 

global internet.
UNITED STATES

12 INTERNATIONAL MONETARY FUND

Box 1. Cyber Risks to Financial Stability1

In the U.S., the finance industry has seen by far the 

most cyber incidents with confirmed data losses. In 

2016 alone, cyber incidents have disrupted the 

provision of financial services (e.g., DarkSeoul malware), 

resulted in significant loss of assets (e.g. Bangladesh 

Bank), and damaged the integrity of financial data (e.g., 

Corkow malware). Financial market infrastructure (e.g. 

payments systems and clearing platforms) tend to have 

little redundancy and concentrate risk, potentially 

causing attacks to transmit quickly across large parts of 

the financial system. Increased digitalization and 

network interconnectivity mean that cyber-attacks are 

likely to occur with greater frequency and 

sophistication.

Cyber risk is potentially systemic but difficult to 

assess and quantify. Cyber risk exposures are common 

across firms and are highly correlated under stress. 

However, the rarity of large cyber events, unknown 

patterns of shock transmission, the lack of data about events, complex risk aggregation, and the uncertainties 

around the long-term effects of cyber events all hamper the measurement, modeling, and pricing of cyber risk. 

The popularity of cyber liability insurance has grown rapidly as financial institutions view it as a convenient 

way to transfer cyber risk. However, actuarial modeling techniques are underdeveloped making it difficult to 

price risk, leaving insurance markets incomplete and with large gaps in coverage. There have also been concerns 

that risk exposures in the insurance market are concentrated, and a large cyberattack could exceed providers’ 

ability to withstand such correlated losses. 

The U.S. financial oversight framework has increased supervisory intensity and enhanced regulatory 

requirements related to cyber vulnerabilities. Regulators are developing and enforcing standards for cyber riskrelated vulnerabilities. Standards are tiered by size and risk, processes for information sharing are being enhanced, 

and regulators are undertaking thematic examinations of cybersecurity preparedness. There are efforts also to 

define the scope of critical financial sector infrastructure and institutions. 

Nevertheless, further policy action is needed. The largely sectoral approach to cyber has created gaps in the 

framework and a lack of consistency. Action is needed to build resilience including:

• Reducing information asymmetries through data and information sharing. Systematic collection and 

sharing of cyber data, including on the costs of cyber events, would help improve the understanding of the 

size and nature of the risk and facilitate better risk management and modeling (by both the public and 

private sector). 

• Undertaking forward-looking scenario analysis and simulations. Such “war gaming” exercises can help 

improve thinking about future risks in a structured manner: how they might materialize, how much they 

could cost, and how they could be contained. This information would help improve financial and contingency 

planning both at a firm level and for the system as a whole. 

• Pursuing public-private partnerships between industry, governments, and academia. This could help 

improve systemic risk management by combining policymaking on the one hand and technical and subject 

matter expertise on the other hand. 

• Refining the regulatory architecture. To encourage cyber-resilient financial systems, high level regulatory 

principles should be complemented with more specific guidance at the firm level. 

1 Emanuel Kopp, Lincoln Kaffenberger, and Christopher Wilson, 2017, “Cyber Risk, Market Failures, and Financial Stability,” IMF 

Working Paper, forthcoming (Washington: International Monetary Fund).

Other industries

Utilities

Other services

Transportation

Administrative

Educational

Manufacturing

Entertainment

Professional

Healthcare

Retail

Public

Information

Unknown

Accommodation

Finance

0 200 400 600 800

Small organizations (<=1K employees)

Large organizations (>1K employees)

Unknown

Source: Verizon, IMF staff illustration. 

Incidents with Confirmed Data Loss, Per Industry 

(2016)
UNITED STATES

INTERNATIONAL MONETARY FUND 13

Risk Assessment Matrix

Nature/Source of 

Risk

Overall Level of Concern

Medium-term Likelihood of Realization Expected Impact if Risk Materializes

Retreat from crossborder integration

High Medium

Changing perceptions on the benefits of 

globalization could lead to trade barriers or 

reduced international policy coordination. 

A retreat from cross-border integration 

would have wide-ranging negative effects 

for both the U.S. and others on trade, 

capital flows, growth, confidence, and 

global cooperation on financial regulation.

Policy and 

geopolitical 

uncertainties

High Medium

Policy uncertainty about U.S. policies 

creates risks around baseline expectations, 

while security issues in the Middle East and 

parts of Africa and Europe intensify 

political, social, and economic risks. 

Policy shifts could fuel global imbalances 

as well as FX and capital flow volatility. 

Adapting to changes to migration flows 

could create negative spillovers to other 

countries. 

Significant further 

strengthening of 

the U.S. dollar 

and/or higher rates

High Medium

Improving U.S. economic prospects relative 

to the rest of the world and/or higher 

interest rates (as the Federal Reserve 

accelerates normalization) could lead to 

further dollar appreciation. 

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. 

Weaker-thanexpected global 

growth: Significant 

slowdown in China 

and other large 

EMs

Medium Medium

A slowdown in China triggered by distress 

in the corporate sector or a disruptive dryup of interbank markets, pressures on the 

Renminbi, or a turning credit cycle could 

lead to sudden overcorrection. Disorderly 

deleveraging could then spill over to other 

EMs and AEs. 

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.

Lower energy 

prices

Medium Low/ Medium

Production cuts agreed by OPEC members 

are not realized and/or other sources of 

supply increase production.

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. There could be 

offsetting positive effects on consumer 

demand from lower oil prices.

Cyber-attacks on 

financial market 

infrastructure or 

key financial 

institutions that 

trigger systemic 

effects

Low High

A successful cyber-attack on one or more 

critical FMIs or systemically important 

financial institutions gives rise to systemic 

risk in the U.S. and/or global financial 

system.

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

14 INTERNATIONAL MONETARY FUND

AN ECONOMY THAT IS FAILING TO RAISE LIVING 

STANDARDS

14. The U.S. economy is delivering better living standards for only the few. The recent 

national election demonstrated a broad dissatisfaction with economic outcomes and prospects. For 

some time now there has been a general sense that household incomes are stagnating for a large 

share of the population, job opportunities are deteriorating, prospects for upward mobility are 

waning, and economic gains are increasingly accruing to those that1 are already wealthy. This sense 

is generally borne out by economic data and when comparing the U.S. with other advanced 

economies. 

15. Weak productivity is a significant headwind to better living standards. Throughout the 

current expansion, there has been little meaningful 

sign of a pick-up in productivity. While evidence is 

mixed, there are various candidate explanations: low 

business investment, declining dynamism in the labor 

market, lower churn in business formation and 

destruction, and an aging population (see Box 2). 

Regardless of the cause, low productivity has been 

associated with a stagnation in household incomes for 

a large share of the population. Indeed, in inflationadjusted terms, more than half of the U.S. population 

has lower incomes today than they did in 2000.

0

6

12

18

24

0

6

12

18

24

Average

annual

wages

Labor force

participation

Life

expectancy

at birth

Overall

mortality

rate

Healthcare

coverage

Poverty rate Secondary

school

graduation

PISA Score

(mathematics)

Share of 25-

34 y.o. with

bachelor's

degree

1995 2005 Current

Living Standards Indicators

(U.S. ranking out of a sample of 24 OECD countries. Lower rank denotes worse outcome)

Sources: OECD, World Bank. Sample is the 24 OECD countries for which wage data is available in 1995. For healthcare coverage the "1995" 

observation is for 1997. PISA scores are for 2003 and current. Average annual wages are in 2015 US$ at market exchange rates. Due to data 

limitatons, secondary school graduation rates rankings as well as poverty rate rankings for 2005 are for a 16 country subsample.

0

0.5

1

1.5

2

0

0.5

1

1.5

2

United States Canada Germany Japan

1986-1995 1996-2005 2010-2015

Total Factor Productivity Growth (Percent y/y)

Source: OECD. Averages over the given periods shown
UNITED STATES

INTERNATIONAL MONETARY FUND 15

Box 2. Understanding the U.S. Labor Productivity Decline: A State-Level Perspective1

Labor productivity growth in the United States has 

slowed down markedly since the mid-2000s. The

slowdown has been visible at the state level with a 

decline in the entire distribution of productivity 

outcomes across states. This state-level variation in 

labor productivity can help shed some light on the 

potential drivers of falling productivity. A panel 

regression was estimated across states that examined 

the variables that may help explain the decline in 

productivity during the most recent economic 

expansions. The analysis finds that: 

• Capital investment. States with a higher initial 

capital stock per worker have higher productivity 

growth. This is a robust feature of all the past 

episodes of economic expansion. Encouraging an 

increase in investment appears critical to fostering 

higher productivity at the national level. 

• Taxation. The level of state income taxation (as a 

share of state-level GDP) is negatively correlated 

with productivity both during the current 

expansion and in the 2000s. This is in contrast 

with previous expansions where labor productivity 

growth was not associated with cross-state 

differences in the tax regime.

• Demographics. A rising dependency ratio is 

found to put downward pressure on output per 

worker. At the national level, an aging population

is likely to continue to compress productivity 

outturns.

• Dynamism. There is no evidence from state level data that the rate of churn either in the 

creation/destruction of establishments or in the labor market is correlated with labor productivity. This 

is true both for the recent expansion and in the 2000s.

• Manufacturing. State-level differences in the size of the manufacturing sector also do not appear to be 

correlated with productivity outturns.

The state-level regressions point to various policy areas that could help raise productivity: a reduction in 

distortions in the tax system and a lowering of marginal rates; regulatory changes to incentivize private 

investment; infrastructure investment; and skills-based immigration reform that improves the dependency

ratio. 

1 Authored by Ali Alichi, Ravi Balakrishnan, and Rodrigo Mariscal. 

Real GDP per Worker by State (annual growth, percent)

Sources: Bureau of Economic Analysis and IM F staff calculations.

Note: whiskers show highest (lower) value excluding outliers; boxes show lower and 

upper quantiles, 25th and 75th respectively; horizontal line shows the median.

-5.0

-2.5

0.0

2.5

5.0

7.5

Recessions 80's Expansion 90's Expansion Last Expansion Current Expansion

-1

0

1

2

3

4

-1

0

1

2

3

4

1985 1989 1993 1997 2001 2005 2009 2013 2017

Real GDP Per Worker (annual growth, percent)

Sources: BEA, IMF staff calculations.

1985-2007 avg.

2010-2017 avg.
UNITED STATES

16 INTERNATIONAL MONETARY FUND

16. Labor force growth has been on a 

structural decline. Labor force participation 

peaked in 2000 at 67 percent and has fallen to

below 63 percent today. This has been a result of 

an aging population and the partial reversal of the 

post-war gains made in female participation. The 

aggregate figures, though, hide a concerning 

decline in prime-age male labor force 

participation, a trend that has been especially 

acute for those without college education. 

Further, over one-third of prime-age men that are 

not in the labor force are now living in poverty. 

Beyond demographics, studies link falling U.S. labor force participation to institutional factors 

(limited subsidies for childcare and the lack of paid family leave) and to declining work opportunities 

(particularly for the low-skilled). Together, weak productivity and a slower growth of the labor force

account for three-quarters of the decline in potential growth since 2000. 

30

50

70

90

30

50

70

90

1960 1970 1980 1990 2000 2010

Female

Labor Force Participation Rates (percent)

Male

Sources: BLS, Have Analytics.

Overall

84

88

92

96

84

88

92

96

1964 1974 1984 1994 2004 2014

Prime Age Male Labor Force Participation 

Rate (percent of population)

Bachelors or More

Some 

College

High School or Less

Sources: BLS Current Population Survey, and IMF staff calculations.

15

20

25

30

35

40

2000 2010 2020 2030 2040 2050 2060

Dependency Ratio 

(age 65+ as share of 16-64 y.o. population)

Rapidly shifting demographics

Source: Haver Analytics, U.S. Census Bureau
UNITED STATES

INTERNATIONAL MONETARY FUND 17

17. The slowdown in potential growth has been associated with several secular 

dimensions of the deterioration in living standards: 

• A decline of the labor share of income. Since 2000, the U.S. labor share has fallen by 3.5 

percent. The decline in the labor share has 

been a common pattern across states and 

within most industries. There are multiple 

factors at work but at the core is an increase in 

competitive pressures facing U.S. workers 

including from an erosion of unionization, 

greater concentration among employers, and 

higher substitutability between labor and 

capital arising from technological change and 

routinization (see Box 3). This declining labor 

share in intimately linked to an increase in

income polarization. 

• Rising income polarization. Real median household income increased by more than 5 percent 

in 2015 but is still 11⁄2 percent below its pre-crisis level. Post-crisis gains in real per capita GDP 

have accrued almost exclusively to higher income groups. Perhaps more disconcerting,

“hollowing out” has meant a shrinking share of the population is taking home earnings that are 

close to this stagnant median income. Since 2000, around 31⁄2 percent of the population has left 

the middle-income group. The bulk have moved into that segment of the population earning 

less than one-half of the median income (see Box 4).

• High rates of poverty. Poverty has been falling 

slowly since 2012 but, despite this, one in seven 

Americans is currently living in poverty. The 

problem is persistent. One half of those that 

were in the lowest quintile of the income 

distribution 20 years ago are still in the lowest 

quintile today. In addition, the children of poor 

households are more likely to have significantly 

lower earnings as adults (compared to those 

who did not grow up in poverty).

18. These adverse developments are feeding back into growth outturns. For example, 

income polarization is suppressing consumption (see Alichi et al., 2016), weighing on labor supply 

and reducing the ability of households to adapt to shocks. High levels of poverty are creating 

disparities in the education system, hampering human capital formation and eating into future 

productivity. While many of these symptoms are interconnected, the diagnostics of the nature and 

size of the connections, and the feedback loops between the various forces are difficult to 

disentangle.

10

12

14

16

18

20

22

24

10

12

14

16

18

20

22

24

1970 1981 1992 2003 2014

Poverty Rates (Percent of total population)

Under 18

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

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

Total

Supplemental

measure 1/

1970

1984

1992 1995

2004

2013 2015

0.36

0.40

0.44

0.48

0.52

0.52 0.53 0.54 0.55 0.56 0.57 0.58 0.59

U.S. Labor Share and Income Inequality

Sources: BEA, US Census Bureau, and Haver Analytics 

Labor Share of Income

Gini Index

(1967-2015)
UNITED STATES

18 INTERNATIONAL MONETARY FUND

Box 3. Explaining the Declining Labor Share of Income in the U.S.1

The Facts. Since the early 2000s, the labor share of 

income has fallen by 3.5 percent. Breaking the data 

down by state and industry shows the decline is broad 

based although with significant variation in the pace 

across states and industries. 90 percent of the 

aggregate decline has been driven by a fall in the labor 

share within industries and states. Thus, the falling labor 

share does not appear to be the result of compositional 

changes either in industrial structure (e.g., the decline in 

manufacturing) or the regional distribution of 

production. 

The Drivers. Exploiting cross state variation of the labor 

share data at the industry level, and matching that with 

new data on the task characteristics of occupations, 

reveals that the decline in labor share was highest for 

those industries that: 

 Had a high initial intensity of “routinizable” 

occupations;2

 

 Experienced the steepest declines in unionization; 

 Faced the greatest increase in competition from 

imports; and 

 Had the highest intensity of foreign input 

usage. 

 The exposure to task offshoring or the 

intensity of labor market regulations appears 

not to have had a significant impact on the 

labor share. 

Bottom line. The results suggest that 

technological change, exposure to trade, and the 

changing structure of labor institutions all 

contributed to the fall in the U.S. labor share of 

income. Since 2000, the bulk of the effect appears 

to come from changes in technology linked to the 

routinization of tasks, followed by trade globalization. 

1

 See Y. Abdih and S. Danninger, “What Explains the Decline of the U.S. Labor Share of Income?”, IMF working paper WP/17/167. 

World Economic Outlook (2017) provides an international perspective on the same issue. 

2

 The study relies on characterizing the tasks of different occupations at the 3-digit level along two dimensions: routinization and 

offshorabilty. These characterizations draw on the Occupational Information Network of the Department of Labor that uses 

survey-based occupation features to measure, among other things, the repeated nature of job tasks, the ability to perform a job

off-site, and the need for person-to-person interactions. 

 

-15

-10

-5

0

5

10

-15

-10

-5

0

5

10

51 31 48 21 11 42 22 71 23 44 53 72 54 52 62 61 81

Labor Share by Industry: Median Change Over 2001-14 

(in percentage points; x-axis values are industry codes)

Source: BEA, Haver Analytics, IMF staff calculations

-10

-8

-6

-4

-2

0

2

4

-10

-8

-6

-4

-2

0

2

4

NE

OK

TX

WV

MI

CA

MN

KSAL

MT

KY

ID

WI

MD

MS

NM

CO

MO

NJ

SCVTCT

FL

NH

GA

DE

Labor Share by State: Change 2001-2014 

(in percentage points)

Sources: BEA and Haver Analytics

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

-4.0

-3.5

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

Total change Within industry/state

Sources: IMF staff estimates.

Residual

Within industry/state

Between industry/state

Drivers of Labor Share Decline: 2001-14 

(in percentage points)

Routinization

Import competition

Unionization

Other

Foreign input intensity
UNITED STATES

INTERNATIONAL MONETARY FUND 19

Box 4. Drivers of U.S. Income Polarization—Evidence from the States1

The Facts. For the past 45 years, the U.S. has faced a 

secular increase in income polarization. Since 2000, 

about 31⁄2 percent of total households have moved 

out of the middle-income group (that earns between 

50–150 percent of the median income), with most of 

those households ending up in the low-income 

group (earning less than 50 percent of the median).

State-Level Patterns. The degree of “hollowing out” 

is variable across the U.S. states. To give a sense of 

variation, since 2000, the increase in income 

polarization was among the largest in Kentucky and 

North Dakota. In Kentucky, more than 7 percent of 

households moved from the middle- to low-income 

ranks. In North Dakota, largely due to the oil boom, 

more than 10 percent of households moved from 

the middle- to the higher-income group. Idaho and 

Oregon, on the other hand, experienced very little 

change in income polarization during this period.

Sectoral Moves. Alongside this increase in 

polarization, there has been a secular shift in the 

structure of U.S. production. Since 2000, most of the 

workers moving out of the middle-income group 

have lost jobs in manufacturing and construction.

Around 1 percent of those households have moved 

into service sector jobs earning more than 150 

percent of the median, but 21⁄2 percent of 

households have moved into low skilled service jobs 

that earn less than 50 percent of the median income. 

Regression analysis. Using state-level data, we find 

that the bulk of move from the middle- to lowincome group can be explained by a structural shift 

in industrial composition (i.e., the decline in

manufacturing and rise of services), an increase in 

the share of (low income) immigrant households, 

and an aging of the workforce. Increases in 

education attainment have been a countervailing 

force. 

1 See A. Alichi, R. Mariscal, and D. Muhaj, “Hollowing Out: The Channels of Income Polarization

in the United States”, IMF working paper (forthcoming).

-4

-2

0

2

4

High

income

Low

income

Middle

income

Income Polarization by Sector, 2000-15

(contributions to the change in percent of total households)

Construction

Production

Services and other

Total

Source: Current Population Survey; and IMF staff calculations. 

-12

-8

-4

0

4

8

-12

-8

-4

0

4

8

1970-2015 1970-2000 2000-2015

high income

middle income

low income

Source: Current Population Survey.

1/ Income is adjusted for household size using OECD's equivalence scale. Middle income 

(class) consists of households falling within 50-150 percent of median income. 

Income distribution 1/

(change in percent of total households)

Age

Female share

Education

Immigration

Manufacturing 

-1

0

1

2

3

1

Contributions to the Change in "Downward" Income 

Polarization, 2000-2015(percent of total households)

Lagged 

dependent

variable

Source: Current Population Survey; and IMF staff calculations. 
UNITED STATES

20 INTERNATIONAL MONETARY FUND

THE RIGHT MACROECONOMIC POLICY MIX

With the economy at full employment, it is important that the U.S. puts in place the right policy mix for 

this stage in the cycle. That would involve gradually removing both fiscal and monetary support and 

refocusing efforts on expanding potential growth, raising competitiveness, and strengthening the 

supply side. Doing so will lower the current account deficit and improve the net international 

investment position, reduce the overvaluation of the U.S. dollar, and have positive spillovers to other

countries. There are two parts to this policy shift:

A. A Sustained and Balanced Medium-Term Fiscal Consolidation

19. Under unchanged policies, 

demographic trends and rising interest rates will 

lead to a steady increase in fiscal deficits and 

public debt over the medium term. To prevent 

this, the U.S. should put in place a plan for fiscal 

consolidation that raises the federal primary surplus 

by 21⁄2 percent of GDP over the next several years 

(to around 1 percent of GDP or a general 

government primary surplus of around 3⁄4 percent 

of GDP). This adjustment can be phased in 

gradually but ought to begin in 2018 to ensure that 

the federal debt-GDP ratio falls over the medium

term.

20. The administration’s budget proposes an expenditure-based medium-term fiscal 

consolidation. Under the authorities’ budget, the federal primary balance is forecast to go from a 

1.9 percent of GDP deficit to a 2.1 percent of GDP surplus over the next 10 years. This includes: 

• A reduction in both non-defense spending and defense outlays as a share of GDP. The nondefense spending reductions are concentrated in two broad areas: a downsizing of line agencies 

(outside of defense and security) and reductions in spending on safety net programs (including 

funding for Medicaid and food stamps as well as tightening eligibility for earned income and 

child tax credits and disability insurance). 

• A tax reform that is designed to improve efficiency, lower marginal rates, and broaden the base 

while leaving the federal revenue-GDP ratio broadly unchanged. 

• An extremely optimistic real GDP growth assumption, that rises to 3 percent by 2021 and 

remains at that level over the medium term.

70

80

90

100

110

120

70

80

90

100

110

120

2016 2019 2022 2025

Government Debt (percent of GDP)

Source: IMF staff estimates

Federal government 

(fiscal years)

General government
UNITED STATES

INTERNATIONAL MONETARY FUND 21

21. Even with an ideal constellation of pro-growth policies, the potential growth 

dividend is likely to be less than that projected in the budget and will take longer to 

materialize. The U.S. is effectively at full employment. For policy changes to be successful in 

achieving sustained, higher growth, they would need to raise the U.S. potential growth path. The

international experience and U.S. history would suggest that a sustained acceleration in annual 

growth of more than 1 percentage point is unlikely. Indeed, since the 1980s, there are only a few 

identified cases among the advanced economies where this has happened. These episodes mostly 

took place in the mid to late 1990s against a backdrop of strong global demand, and many of them 

were associated with recoveries from recessions. The U.S. itself experienced one comparable growth 

acceleration as it recovered from the deep recession of the early 1980s. However, this event 

occurred during a period of favorable demographics, rising labor force participation, a significant 

expansion of the federal fiscal deficit, and an acceleration in trading partner growth. These tailwinds 

are unlikely to recur today.

22. The U.S. has some fiscal space but an expansionary fiscal policy would be 

counterproductive at this stage of the cycle. The U.S faces low financing costs and benefits from 

strong demand for high quality liquid assets and the U.S. dollar’s status as a reserve currency. Over a 

longer horizon, if the fiscal costs associated with an aging demographic remain unaddressed, the 

debt-GDP ratio will continue to rise which may call into question the creditworthiness of the federal 

government. However, with the economy so close to full employment any fiscal impulse at this 

juncture is unadvisable and will almost certainly lead to a steepening of an already-unsustainable 

federal debt-GDP path (see Annex II), an even more overvalued U.S. dollar, a more accelerated path 

of monetary policy normalization, and growing global current account imbalances. 

23. Instead, a gradual fiscal consolidation should be pursued. As currently framed, the 

budget implies significant cuts to discretionary spending that places a disproportionate share of the 

adjustment burden on low- and middle-income households. This would appear counter to the 

budget’s goals of promoting safety and prosperity for all Americans. Instead, a different 

-2

0

2

4

6

8

-2

0

2

4

6

8

Australia* Finland* Iceland Ireland New

Zealand*

Norway Sweden* United

Kingdom

United

States*

1994-99 1997-02 1998-02 1996-01 1996-01 1995-99 1996-01 1997-02 1984-88

Total factor productivity

Capital

Total hours

Sources: CBO, OECD, and IMF staff calculations

*Denotes countries coming from recession and explains large growth acceleration.

Chart shows those years in which the growth in potential GDP per working-age adult increased on average by one 

percent for at least 5 years.

Growth Accelerations in Advanced Economies

(in percent)
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22 INTERNATIONAL MONETARY FUND

composition of adjustment—with higher revenues and expenditures—could be put in place based 

on:

• A tax reform that simplifies the tax system, improves efficiency, supports low- and middleincome households and, importantly, increases the federal revenue-GDP ratio (see below). 

• More balanced expenditure restraint that strengthens the effectiveness and efficiency of the 

safety net and reprioritizes appropriations, increasing spending on those programs that 

encourage labor force participation, improve infrastructure, and raise productivity and human 

capital. 

• Measures to reform the social security system, including raising the income ceiling for social 

security contributions, indexing benefits to chained CPI or PCE inflation, increasing the 

retirement age, and instituting greater progressivity in the benefit structure. This could reduce 

the imbalances in the social security system by around 0.5 percent of GDP per year.

• Policy action to contain healthcare cost inflation, including through technological solutions that 

increase efficiency, encourage greater cost sharing with beneficiaries, and shift incentives toward 

remunerating providers for health outcomes (rather than per procedure). 

• Avoiding self-inflicted wounds from political brinkmanship over appropriations and the debt 

ceiling. As has been argued in past consultations, consideration could be given to replacing the 

debt ceiling with a clear, simple medium-term fiscal objective or automatically adjusting the 

debt ceiling in a way that is consistent with whatever agreement is struck on the broader budget 

parameters.

Such a policy approach would lower the public debt-GDP ratio over time and would do so with 

better distributional outcomes. Supporting low- and middle-income households and promoting 

investments in human and physical capital formation, would feed back into better growth and lead 

to more broad-based improvements in living standards over the medium-term.

24. Authorities’ views. The administration is committed to increasing defense, infrastructure 

and security spending in the upcoming fiscal year and to lower most other spending items, outside 

of social security and Medicare. There is scope to reduce or eliminate programs with limited effect 

on outcomes since there is significant inefficiency and duplication in existing federal spending. As 

part of this re-examination of spending, efforts were being made to devolve responsibilities and 

provide states with greater flexibility in a range of areas (including Medicaid, social assistance 

programs, and infrastructure provision). This would allow states to innovate, find more efficient 

solutions, and ultimately yield better outcomes at a lower cost. The proposed reductions in federal 

spending will encourage a return to productive work and, as a result, have positive implications for 

the income distribution.
UNITED STATES

INTERNATIONAL MONETARY FUND 23

B. A Gradual and Well Communicated Monetary Normalization

25. With the Federal Reserve on track to

achieving its dual mandate of price stability and 

maximum employment, policy rates should 

continue to rise. The pace of rate increases can be 

gradual, especially when compared with previous 

tightening cycles, and should certainly be data 

dependent. Given the downside risks to inflation 

and the asymmetries posed by the effective lower 

bound, the Federal Reserve should be ready to 

accept some modest, temporary overshooting of its 

inflation goal that allows inflation to approach the 

2 percent medium-term target from above. Doing 

so would provide valuable insurance against the risks of disinflation and having to bring the federal 

funds rate back down to zero. Presuming fiscal policy and other developments evolve in line with 

staff’s forecasts, to ensure that inflation rises only modestly above 2 percent will require an increase 

in the federal funds rate of a further 25 basis points in 2017 and 75 basis points in 2018. Policy rates 

should level off at the neutral rate by end-2019 (which is judged to be in the 2.5–3 percent range).

As in the past, futures markets are pricing in a much flatter path for the federal funds rate in 2017–

19 (although it is worth noting this measure does not represent the modal forecast of the market).

26. Alongside the ongoing normalization in policy rates, it is appropriate that the Federal 

Reserve looks to unwind the post-crisis increase in its holdings of treasury and mortgagebacked securities. Given the risk of triggering an unexpected steepening of the yield curve or a rise 

in MBS spreads, plans for the Fed’s balance sheet should be well-telegraphed at an early stage. The 

recent addendum to the policy normalization principles and plans provides market participants with 

a clear path for changes in reinvestment policy that will help avoid undue volatility in fixed-income 

markets. Specifically, the addendum indicates:

• There will be a gradual reduction in the Federal 

Reserve’s securities holdings as reinvestments 

of maturing issues are scaled back over time. 

Initially, only maturing principal above 

US$6 billion per month for treasuries and 

US$4 billion per month for MBS would be 

reinvested. These caps would be gradually 

raised to US$30 billion and US$20 billion per 

month, respectively, during the first year that 

reinvestments are being reduced. 

• The US$30 and US$20 billion caps would remain in place over the medium term allowing for a 

gradual decline in the balance sheet.

0

5

10

15

20

25

0.0

1.0

2.0

3.0

4.0

2017 2018 2019 2020 2021 2022 2023 2024 2025

Balance Sheet (US$ trillions)

Sources: FRB; and IMF staff estimates

Treasuries, FRNs, and TIPS

MBS and Agencies

Total balance sheet

(percent of GDP, RHS)

0

1

2

3

4

0

1

2

3

4

2017Q2 2018Q2 2019Q2 2020Q2 2021Q2 2022Q2

IMF staff projection

(as of 6/14/17)

Policy Rate Expectations (percent)

Sources: Federal Reserve; Bloomberg; and IMF staff estimates

Primary Dealers Survey

(expectation range, 

as of 4/24/17)

FOMC median dots

(as of 6/14/17)

Fed funds futures

(as of 6/14/17)
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24 INTERNATIONAL MONETARY FUND

• The FOMC would be prepared to resume reinvestment of principal payments if there were a 

material deterioration in the economic outlook that warrants a sizable reduction in the target for 

the federal funds rate.

The expectation of FOMC members is that this plan would begin to be implemented later this year.

27. The monetary policy effects of balance sheet roll-off are expected to be small. Under 

the announced plan, if normalization were to begin at end-2017, the balance sheet would decline by 

US$318 billion in 2018 and by US$409 billion in 2019. Such a reduction could have a monetary 

policy impact equivalent to a 22 basis point increase in the federal funds rate over the next two 

years (based on Davig and Smith, 2017). Even this relatively small effect may, though, be overstated 

since market pricing already incorporates an expectation of balance sheet reduction over the 

medium-term. This seems to be borne out by the modest market impact from the publication of the 

addendum to the policy normalization principles and plans. Given the small monetary effects, unless 

the U.S. economy is hit by a significant negative shock, it is appropriate that the normalization of the 

balance sheet proceeds independently of changes in the federal funds rate and in inflation and 

employment outcomes. Decisions on the balance sheet should, instead, be geared toward 

minimizing market volatility.

28. As balance sheet normalization proceeds, the FOMC could provide a broad indication 

of what the eventual monetary policy operating framework may look like over a longer 

horizon. Further, given the long duration of the Fed’s holdings of MBS securities, consideration 

could be given to either selling or swapping MBS for treasuries to ensure that, over the longer run, 

the balance sheet is only made up of treasury securities. Continued clear communication of such 

prospective changes will maintain the Federal Reserve’s estimable track record of smoothly 

normalizing U.S. monetary policy.

29. Authorities’ views. Recent declines in inflation are viewed as likely to be transitory and 

idiosyncratic. It was expected that inflation would remain somewhat below 2 percent in the near 

term but would rise to the 2 percent objective over the medium term. However, the FOMC is 

conscious of the potential downside risks to inflation following recent data outturns and would be 

watching incoming data carefully for signs that there may be more sustained headwinds that would 

prevent the Fed from reaching its medium-term inflation goals. Fed holdings of securities are 

expected to decline in a gradual and predictable manner and the federal funds rate would be the 

primary means for adjusting the stance of monetary policy. A material reduction in the economic 

outlook that warranted a sizable reduction in the federal funds rate could be accompanied by a 

resumption of reinvestment of principal payments. However, under the baseline outlook, the 

intention is for changes to the balance sheet to be quietly operating in the background over the 

next several years with minimal effects on financial conditions. The future level of reserves in the 

banking system would be appreciably below that seen in recent years but larger than before the 

financial crisis. Details about the longer-term operating framework would be decided and 

communicated to the public in due course.
UNITED STATES

INTERNATIONAL MONETARY FUND 25

STRENGTHENING THE FOUNDATIONS FOR GROWTH

AND RESILIENCE

As was highlighted in the 2016 Article IV, the U.S. faces serious constraints on its medium-term growth 

prospects. These include weak productivity, falling labor force participation, an increasingly polarized 

income distribution, an aging population, and high levels of poverty. These pernicious secular trends 

have led to a labor share of income that is around 5 percent lower today than it was 15 years ago, a 

middle class that is smaller today than at any point in the last 30 years, and—aside from the 

immediate aftermath of the financial crisis—the lowest potential growth rate since the 1940s. Finding 

solutions to alleviate these long-running supply-side issues and mitigate the associated unfavorable 

trends in the income distribution will be key to the health of both the U.S. and the global economy. It 

will require action in multiple areas—tax, infrastructure, trade, regulation, education, healthcare, 

immigration, and support for low-and middle income households—which should be front-loaded as 

much as is possible.

A. Tax Policy

30. There is broad agreement on the objectives of tax reform. These include simplifying

the system and scaling back the extensive network of tax preferences; lowering marginal rates;

incentivizing labor force participation, business investment, and productivity-enhancing innovation; 

mitigating income polarization; and supporting low- and middle-income households. 

31. However, the consultation revealed differences of views on the policies to achieve 

these objectives. The limited details that are available on the administration’s tax reform suggest it 

is likely to generate a fall in the revenue-GDP ratio over the medium-term and that tax relief is likely 

to disproportionately benefit the wealthy. In staff’s view, to provide resources for fiscal outlays that 

would strengthen potential growth and to contribute to the needed reduction in the public debt, 

the tax reform should be designed to be revenue enhancing over the medium-term. Such a reform 

could include:

• Business tax. The U.S. corporate income tax could move to a rent tax (either a cashflow tax or 

an allowance for corporate capital tax) with a somewhat lower marginal rate. This would 

incentivize business investment and lessen the existing bias toward debt finance. Such a reform 

could be combined with an elimination of the various corporate tax preferences that currently 

complicate the system, making the tax code more equitable and efficient. Naturally, such a 

change would have important domestic effects (on activity and investment) and sizable 

international spillovers (including effects on both international investment location and 

changing incentives for profit shifting). 

• Taxing offshore profits. Transitioning to a territorial system, as has been proposed by the 

administration, merits consideration but ought to be combined with a minimum tax for profits 

earned in low tax jurisdictions to limit the scope of profit-shifting. The administration’s proposal 
UNITED STATES

26 INTERNATIONAL MONETARY FUND

to enact a one-time tax on the stock of unrepatriated profits of multinationals deserves support 

as part of a comprehensive tax reform package. Such profits could be taxed at a rate that is 

modestly lower than the current corporate tax rate. Providing only moderate tax relief would be 

efficient (since it is a tax on past profits) particularly given that the existing system of tax deferral 

has already conveyed significant benefits to those taxpayers that have chosen not to repatriate 

profits. Such a policy would generate a temporary, front-loaded uplift in fiscal revenues, which 

can help fund near-term expenditure needs (e.g. infrastructure, paid family leave, healthcare) 

before the full tax reform is in effect. Payment of the resulting tax liability could be spread over 

several years to address liquidity concerns of affected corporations. 

• Individual income tax. Providing tax relief for low- and middle-income groups, as has been 

proposed by the administration, would help alleviate income polarization and encourage labor 

force participation. The bulk of itemized deductions can be eliminated alongside an increase in 

the standard deduction. Any remaining deductions (e.g., for mortgage interest and charitable 

contributions) should be capped. Consideration could also be given to limiting the tax 

preference that is given to employer-provided health insurance plans. The authorities should 

expand eligibility and increase the generosity of the earned income tax credit (EITC) to support 

lower-income households and incentivize work. To lessen the risk that an expanded EITC leads 

to a decline in pre-tax wages at the bottom of the income distribution, the EITC expansion 

ought to be combined with an increase in the federal minimum wage. 

• Pass-through entities. Any tax rate reductions for pass-throughs need to take revenue 

implications into account. Setting the effective rate on pass-throughs below the effective rate on 

distributed corporate profits and/or the top marginal personal income tax rate creates important 

incentives for some firms to become pass-throughs and for high income employees to become 

independent contractors in order to lessen their tax burden. Putting in place anti-avoidance 

provisions could help limit such a recharacterization of income but would add significantly to 

administration burdens with uncertain implications for revenues. 

• Consumption taxes. To ensure the overall tax reform is revenue-gaining, the U.S. has the scope 

to rely more on other revenue sources, including a federal level consumption tax, a broad-based 

carbon tax, and a higher federal gas tax. To give a sense of what is feasible, a broad-based, 

5 percent consumption tax would generate around 11⁄2 percent of GDP per year in revenues, a 

carbon tax of around US$45 per ton of CO2 would generate 0.5 percent of GDP per year, and 

each 50 cents increase in the gas tax would raise revenues by around 0.3 percent of GDP per 

year. Such a move from direct to indirect taxes is likely to be positive for long-run growth. If the 

reductions in personal income tax are designed to be progressive and targeted toward low- and 

middle-income households, they will also help lessen income polarization (Box 5). 

32. Authorities views. The administration continues to work to craft a tax reform that reduces 

distortions and provides tax relief for middle-income families, consulting with both Congress and 

the public. The administration is committed to lowering individual income tax rates, eliminating a 

range of exemptions and deductions, expanding the standard deduction and providing help for 

child and dependent care expenses. The intention is to eliminate the alternative minimum tax, the 
UNITED STATES

INTERNATIONAL MONETARY FUND 27

3.8 percent surcharge on capital gains and dividends, and the estate tax. On the business side, the 

goal would be to lower the corporate tax rate to 15 percent (including for pass-throughs), eliminate 

most tax expenditures and special regimes, and transition to a territorial system with a one-time 

repatriation tax on already accumulated overseas income. The dynamic effect of this combination of 

reforms is expected to maintain the federal revenue-GDP ratio at close to current levels. The 

proposal to put in place either a carbon tax or consumption tax is not politically feasible at this time.

B. Improving Infrastructure

33. Underinvestment in infrastructure 

has become a growing constraint on private 

sector productivity and long-term growth 

and job creation. Investment in public 

infrastructure has declined significantly in the 

post-recession period. A permanent increase in 

federal, state, and local infrastructure spending 

of at least 0.5 percent of GDP per year is needed 

(based on the American Society of Civil 

Engineers estimates of the U.S. infrastructure 

gap). This should be achieved by an increase in 

federal, state, local and private funding of 

infrastructure projects. Priorities include improving the quality and reliability of surface 

transportation and upgrading infrastructure technologies (e.g., in high speed rail, ports, and 

telecommunications). It will be important to ensure the right mix is achieved between the public 

funding of maintenance and repair versus new projects. The US$200 billion appropriation in the 

budget aimed at catalyzing US$1 trillion in private and public infrastructure investment would, if 

realized, support long-term growth. 

34. Authorities’ views. U.S. infrastructure needs to be rebuilt and modernized to create jobs, 

maintain economic competitiveness, and connect communities and people to opportunities. The 

administration is targeting an increase of US$1 trillion in infrastructure investment through a 

combination of new federal spending and incentives for greater private, state and local funding. The 

federal government is prepared to offer loans, loan guarantees, and lines of credit to support 

infrastructure projects with federal outlays concentrated on only the most transformative projects 

(priorities include motorways, roads, aviation, airports, and air traffic control systems). Efforts will be 

made, where feasible, to transfer responsibilities to state and local governments. The private 

provision of infrastructure will be leveraged to achieve better procurement methods, more market 

discipline, and a long-term focus on maintaining assets. The environmental review and permitting 

process is fragmented, inefficient, and unpredictable making the delivery of infrastructure more 

costly and time-consuming while offering little environmental protection. The intent is to 

significantly streamline these processes, reducing the time taken to approve pending projects and 

increasing both the certainty of project completion and the return on investment.

1.0

1.5

2.0

2.5

1.0

1.5

2.0

2.5

1990 1995 2000 2005 2010 2015

Public Investment, Structures (percent of GDP)

Sources: BEA; Haver Analytics; and IMF staff calculations
UNITED STATES

28 INTERNATIONAL MONETARY FUND

Box 5. The Dynamic Distributional Effects of Tax Reform: A Heterogenous Agent Model1

The U.S. authorities plan to reduce personal income tax rates and to simplify the existing system (by eliminating 

deductions and consolidating the marginal rate structure). To jointly assess the dynamic effects on income 

distribution and the macroeconomy of lowering effective personal income tax rates, a multi-sector, general 

equilibrium, heterogenous agent model, calibrated to the U.S., was deployed. 

A middle-class tax cut. A simple reform was simulated that reduces the effective tax rates for those earning 

between 0.5 to 4 times the median income, paid for by a cut in (wasteful) government spending. 

• There is a positive effect on output from an increase in the labor supply and higher savings (which in turn 

lowers the cost of capital). Higher after-tax incomes stimulate consumption, raising the demand for both 

capital and labor. The supply side effects are not large enough, however, to prevent the tax cuts from being 

revenue losing. 

• The tax cut results in a loss of revenues of 0.8 percent of GDP but raises steady state GDP by just under 1 

percent. This implies a personal income tax multiplier of 1.1. 2

• Both middle- and low-income households profit from the cut. Even though the lowest quintile does not 

receive a tax cut, the increased demand for non-tradable services by middle income households raises the 

demand for—and the wages of—low-skilled labor helping to support their income and consumption.

Adding in a consumption tax and an EITC expansion. To ensure the reform is revenue neutral, consumption 

taxes are increased. To mitigate the regressive effects of the consumption tax on the poor, the EITC is expanded 

for households earning less than one-half of the median income. 

• As expected, the shift from direct to indirect tax has a small but positive impact on growth.

• The tax cuts and EITC expansion leave the bottom 60 percent of the income distribution better off. However, 

the increased after-tax cost of non-tradables makes highest earners worse off in terms of steady state 

consumption.

1 See S. Lizarazo, A. Peralta-Alva, and D. Puy, “Do Tax Cuts Trickle Down: A Heterogenous Agent Model Approach for the U.S.”, 

IMF Working Paper (forthcoming).

2 Magnitudes all correspond to the % change from the baseline steady state. The new steady state is reached after 5 years.

0

1

1

2

2

3

GDP C I

Middle Class Tax cut

Middle Class Tax cut w/ VAT and EITC

Macro Effects of Middle Class Tax Cut, 

Consumption Tax and EITC (percent change)

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

GDP C I Tax revenue/

GDP

Macro Effects of Middle-Class Tax Cut 

(percent change in steady state)

-2

0

2

4

6

8

1 2 3 4 5

Consumption, by quintile 

(percent change in steady state)

-4

-2

0

2

4

6

1 2 3 4 5

Middle Class Tax cut

Middle Class Tax cut w/ VAT and EITC

Consumption, by quintile 

(percent change in steady state)
UNITED STATES

INTERNATIONAL MONETARY FUND 29

Box 5. The Dynamic Distributional Effects of Tax Reform: 

A Heterogenous Agent Model1(concluded)

The impact of tax cuts for higher income groups. Instead of targeting tax cuts at the middle class, the same 

experiment was run (with consumption tax and EITC expansion) but with the tax reductions accruing, instead, to 

those in the top quintile. 

• Relative to the middle-class tax cut, there are larger growth effects when the tax cut is incident on the higher 

income groups. The top quintile responds to lower taxes by saving more3 and supplying more high-skilled 

labor. This feeds through into a bigger growth effect. The increased after-tax income of higher income 

households translates into higher demand for non-tradables which, in turn, are produced by low- and middleincome groups. 

• Despite the larger growth impact, there is an important trade-off with the effects of such a reform on the 

income distribution. Even with the EITC expansion and a higher demand for those services that are produced 

by low- and middle-income groups, the share of total consumption that goes to low and middle- income 

households would fall under such a policy. Not surprisingly, the tax cut for the wealthy significantly worsens 

the polarization of income and the model’s embedded “trickle-down” effects are insufficient to raise welfare 

for the bulk of the population.

3

For the same model in an open economy setting, increased saving by higher income groups would lower the current account 

deficit but not increase investment. This would diminish the growth effect (by around half) but would still leave tax cuts for the 

top quintile having a larger GDP impact than if the tax cuts were targeted at the middle-class.

-4

-2

0

2

4

1 2 3 4 5

Middle Class Tax cut

High Income Tax cut

Consumption, by quintile 

(percent change in steady state)

0

1

2

3

4

GDP C I

Middle Class Tax cut

High Income Tax cut

Middle Class vs High Income Tax Cuts (% change)
UNITED STATES

30 INTERNATIONAL MONETARY FUND

C. Financial Regulation

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

since the global financial crisis (see the 2015 Financial Sector Assessment Program). Over the past 

several years a series of decisive measures was put in place to lessen the potential for financial 

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

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

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

emphasis on banks’ capital planning, stress testing, and corporate governance. While it has raised 

compliance costs for financial institutions, the Federal Reserve’s Comprehensive Capital Analysis and 

Review (CCAR) process has proven to be particularly valuable. Further important regulatory 

measures have been, or are being, implemented including liquidity risk requirements for money 

market and mutual funds; standardization of derivatives products and markets; measures that 

reduce banks’ medium-term asset-liability mismatch (through the net stable funding ratio); and a 

framework for bank recovery and resolution (i.e., rules on “living wills” and bail-in-able debt).

36. The Treasury has proposed a range of reforms to the financial oversight of

depository institutions. These include:

Refocusing existing standards

• Changes to regulatory thresholds. The total asset threshold (currently at US$50 billion) above 

which banks are subject to Fed stress testing would be increased and the set of bank holding 

companies subject to enhanced supervision and prudential standards would become smaller. 

• Liquidity Coverage Ratio (LCR). The LCR would only apply to GSIBs and a lower liquidity 

standard would be applied to non-GSIBs that are internationally active. Non-internationally 

active banks would not face a LCR requirement. The definition of High Quality Liquid Assets 

(HQLA) in calculating the LCR would be expanded to include high-grade municipal bonds. In 

addition, a less conservative calculation would be used in determining future net cash outflows

(the denominator of the LCR).

• Supplemental Leverage Ratio (SLR). The calculation of the ratio would be made less binding 

by allowing for deductions in the denominator (for cash, Treasury securities, and margin held for 

centrally cleared derivatives). 

• Risk-based capital surcharges. The application of international standards for the enhanced 

SLR, and the calculation of Total Loss Absorbing Capacity for GSIBs would be revisited. There 

would also be a delay in the implementation of trading book capital rules and the Net Stable 

Funding Ratio to give time to reexamine these proposed rules.

• Volcker Rule. Banks with less than US$10 billion in assets would be exempt from the Volcker 

rule. The definition of what constitutes proprietary trading would be narrowed, and banks would 

be given more leeway to maintain a market-making inventory of assets. 
UNITED STATES

INTERNATIONAL MONETARY FUND 31

• Residential Mortgages. Some of the regulations would be relaxed, including loosening the 

minimum requirements for loans to be eligible for securitization by the government sponsored 

entities, revising limits on fees for mortgage lending, scaling back the mortgage risk retention 

rules, and simplifying reporting requirements. 

Procedural and organizational changes

• Comprehensive Capital Analysis and Review (CCAR). In order to lessen the regulatory 

burden, the Treasury report proposes moving the Fed’s stress testing process to a two-year 

frequency; requiring publication of the Fed’s stress testing models; giving banks more leeway in 

using their internal models; and limiting the stress tests to a more narrowly defined and less 

conservative set of scenarios. In addition, qualitative considerations (e.g., on a bank’s risk 

management systems and capital planning process) would no longer be the sole basis in 

objecting to capital plans for banks subject to stress testing. The existing countercyclical capital 

buffer would be eliminated, and countercyclical tools would be implemented, if needed, as part 

of the Fed’s stress testing exercise.

• Financial Sector Oversight Council (FSOC) powers. The FSOC would be allowed to assign a 

lead regulator in cases where multiple regulators have jurisdiction. A separate report will be 

released in the coming months examining the process by which the FSOC can designate 

financial institutions as systemic and subject them to enhanced supervision.

• Resolution. The living wills submission schedule would move to a two-year frequency and the 

FDIC would be removed from the process (with the Fed being the sole authority). Greater clarity 

would be given on the assessment framework which would be subject to public comment.

Further recommendations on orderly liquidation authority will be released in the coming months 

in a separate report. 

• Institutional changes to the Office of Financial Research (OFR) and the Consumer Financial 

Protection Bureau. It would be possible to remove the directors of these agencies at will, and 

their budgets would be subject to annual appropriations (with the OFR budget under the control 

of Treasury). 

• A simplification of the regulatory regime. The report recommends action to reduce 

fragmentation, overlap, and duplication in the U.S. regulatory structure, including by 

consolidating regulators and more clearly defining regulatory mandates. 

• A regulatory off-ramp. The Treasury proposal recommends allowing institutions that maintain 

a 10 percent leverage ratio to be exempt from risk-based capital, liquidity, and stress testing 

requirements as well as not to be bound by the Volcker rule.

37. There is broad-based support for simplifying the regulatory structure and finetuning various regulatory requirements for smaller, non-systemic institutions. The 2015 FSAP 

found significant scope to reduce regulatory overlaps and consolidate regulatory agencies to 
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32 INTERNATIONAL MONETARY FUND

encourage better coordination and reduce duplication. There is also a case to put in place a simpler 

regime for small and community banks, that is backed by risk-based supervision. Finally, there is a 

need to revisit the thresholds for institutions to be subject to stress tests or to be considered 

systemic. 

38. Nevertheless, the thrust of the current approach to regulation, supervision and 

resolution should be preserved. The FSOC should be supported in its efforts to identify risks and 

respond to emerging threats to financial stability. There is scope and need to extend the analytical 

work of the OFR. The Fed should continue to refine and strengthen its CCAR exercise and maintain

the rigorous requirements currently in place for passing the stress testing exercise. The current 

designation framework could be improved to be more expeditious, transparent, and accountable. 

The exemption of Treasury securities from the calculated leverage ratio is problematic and could 

lead to efforts to exempt other low-risk weighted assets from the calculation (which would erode its 

effectiveness as a supplemental tool). Finally, efforts to dilute liquidity and counterparty risk 

requirements should be avoided, especially if doing so creates inconsistencies with the minimum 

standards determined by international regulatory bodies. 

39. The U.S. ought to maintain its special resolution regime for systemic financial entities 

as a backstop to resolution under the bankruptcy code. This would help facilitate orderly 

resolution and prevent any contagion that could put system-wide stability at risk (see 2015 FSAP). A

court-based bankruptcy regime may prove insufficiently nimble, lack the authority to provide 

needed temporary public financial support, lead to a dilution of regulators’ powers, and give rise to 

stability and contagion risks. To ensure adequate preparation for potential resolution cases, the FDIC 

should remain responsible, jointly with the Fed, for the adequacy and review of “living wills”. 

40. The current risk-based capital framework should not be replaced with a simple 

leverage ratio. On a system-wide basis, the 

incremental capital needed to meet a 10 percent 

leverage ratio is estimated to be close to US$200 

billion (see Chami et al, 2017). While this may be 

unduly costly for many banks, the existence of 

such an “off ramp” may give banks 

counterproductive incentives to increase capital 

but place more capital into risky activities. It would 

be particularly problematic to allow banks to selfselect into a less demanding regulatory and 

supervisory regime, regardless of the underlying 

systemic risk of their operations. 

41. The maintenance of a robust financial regulatory regime in the U.S. has positive 

spillovers to other economies. These have manifested both through reducing financial stability 

risks in the U.S. and the knock-on effects from encouraging progress to strengthen the global 

regulatory framework. As such, the U.S. should remain engaged in the international discussions and 

reaffirm its commitment to agreed international standards. Delayed implementation of trading book 

0 10 20 30 40

Citigroup

US Bancorp

State Street

BNY Mellon

Wells Fargo

Bank of America

JP Morgan Chase

Incremental Tier-1 Capital Needed to Meet A

10 percent U.S. Leverage Ratio (US$ billions)

Sources: SNL data; and IMF staff calculations. U.S. leverage ratio defined as 

tier 1 capital / banks total assets excluding off-balance sheet assets. 
UNITED STATES

INTERNATIONAL MONETARY FUND 33

capital rules, the Net Stable Funding Ratio, and Total Loss Absorbing Capital rules runs the risk of 

eroding efforts to complete this and other areas of the international reform agenda.

42. Authorities’ views. The administration is committed to the core principles of preventing 

taxpayer-funded bailouts; focusing regulations to address systemic risk and market failures; making 

financial regulation efficient, effective, and appropriately tailored to the size of the institutions; and 

strengthening the public accountability of financial regulatory agencies. The Secretary of the 

Treasury has published the findings and recommendations following a thorough review of existing 

laws and financial regulations insofar as they relate to depository institutions. The proposed changes 

are driven by a desire to more carefully customize and tailor the regulatory regime to the size and 

risk of the depository institutions and to reduce regulatory burdens. A broader use of cost-benefit 

analysis by financial regulators should be required, regulators should face stronger transparency and 

accountability requirements, and there is a need to provide regulatory relief for small and 

community based financial institutions. The U.S. Treasury Department will continue to participate in 

the full range of international meetings on financial regulations and will continue to advocate for a 

level playing field for U.S. financial institutions. The institutional changes proposed for the CFPB and 

OFR are geared toward making the agencies more accountable with a more focused mandate.

D. Trade

43. Open international trade has long supported U.S. growth and job creation with 

positive spillovers for other countries. A slower pace of global trade reform since the early 2000s 

has left in place trade barriers, subsidies, and other trade-distorting measures. There is a need, 

therefore, to revitalize the process for further trade integration. The promotion of a level playing 

field in international trade, particularly in growth areas such as services, would offer important gains 

to the U.S. (in terms of productivity, competitiveness and economic growth, markets for exports, and 

job creation) while also promoting global economic growth. In this regard, the administration’s 

commitment to free, fair and mutually beneficial trade and investment and to improving the rulesbased international trading system is welcome.

44. Several trade policy reviews are underway. The administration has initiated several 

policy reviews that are expected to conclude with specific recommendations. These include 

examining the forces underlying bilateral goods trade deficits, whether steel or aluminum imports 

should be restricted on national security grounds, analyzing the effect that free trade arrangements 

have had on the U.S. economy, and reviewing government procurement practices (linked to existing 

“Buy American” provisions). As these reviews proceed, the U.S. has reiterated publicly that it intends 

to keep its markets open and fight protectionism, while standing firm against all unfair trade 

practices. In its deployment of Section 232 of the Trade Expansion Act of 1962, the U.S should be 

judicious in its use of import restrictions on national security grounds. 

45. The administration is focused on reshaping existing U.S. trade agreements. The 

administration has withdrawn from the Trans-Pacific Partnership and notified Congress of its intent 

to renegotiate NAFTA. Pursuing new and updated trade agreements could provide the 
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34 INTERNATIONAL MONETARY FUND

administration an opportunity to address existing trade barriers while unlocking new sources of 

growth. There are important gains to be had for all negotiating parties in securing more ambitious 

agreements with trading partners, in areas such as transparency, e-commerce, services, as well as 

labor, environmental and safety standards. The U.S. would benefit by remaining open as it pursues 

new or amended trade agreements and should avoid new import restrictions. 

46. Authorities’ views. Free, fair and reciprocal trade and international investment can lead to 

economic growth and job creation but unfair trade practices have disadvantaged U.S. workers and 

businesses, leading to large and persistent trade imbalances. Trade-distorting practices—such as 

dumping, non-tariff barriers, forced technology transfer, non-economic capacity, subsidies and 

other non-market behavior and government support—should be eliminated to foster evenhanded 

competition. At the same time, existing agreements—written decades ago—need to be assessed as 

to their continued adequacy for promoting free and fair trade. The administration is seeking to 

ensure that trade and investment agreements with the U.S. serve to enhance economic growth, 

break down barriers to exports, contribute favorably to its trade balance, and strengthen its 

manufacturing base. Efforts are planned to improve the functioning of the WTO dispute settlement 

system and to ensure full and transparent implementation and timely enforcement of WTO 

agreements, as originally written. The administration intends to focus more on bilateral negotiations 

with trading partners to ensure more rapid progress toward new and revised trade agreements that 

focus on reciprocity.

E. Deregulation

47. A central plank of the new administration’s economic plan is to revisit federal 

regulations in a range of areas. In international comparisons, the U.S. already scores favorably on 

regulatory barriers to entrepreneurship, trade, and investment. In addition, U.S.-specific research on 

the evidence of negative economic implications of regulations is scant. Nonetheless, a simplification 

and streamlining of federal regulations as 

well as an effort to harmonize rules across 

states would likely boost efficiency and could 

stimulate job creation, productivity, and 

growth. There may also be scope to achieve 

desired outcomes through means other than 

regulation (e.g., to replace regulatory limits 

on carbon with a broad-based carbon tax). 

However, in reforming the current regulatory 

system, care is needed to avoid negative 

consequences for the environment, 

workplace safety, and protections for lowerincome workers.

48. Authorities’ views. The current regulatory system is both ineffective and inefficient, 

imposing significant dead-weight costs on businesses, states, and local governments. Federal 

Germany

Netherlands

United 

States

China

0.5

1.0

1.5

2.0

2.5

3.0

0.0 0.5 1.0 1.5 2.0 2.5

Regulation Indicators

Barriers to trade and investment

Barriers to entrepreneurship

Source: OECD. Higher values denote greater levels of regulation.

lower regulation
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INTERNATIONAL MONETARY FUND 35

permitting practices—including those for new infrastructure projects—are unnecessarily 

burdensome. Work is already underway to identify those regulations that eliminate jobs, inhibit job 

creation, or are outdated or ineffective. For every new regulation that is introduced, two will be 

eliminated and the net cost of all new regulations will be zero. The effect of these efforts will have a 

large positive effect on growth and investment with minimal side effects on environmental, safety, 

or worker protections.

MAINTAINING A PRODUCTIVE AND FLEXIBLE 

WORKFORCE

A range of measures could be taken to increase the adaptability of households and businesses, 

mitigate secular trends in income polarization and poverty, raise labor force participation, create the 

environment to increase investments in human capital, and boost productivity. Many of these macrocritical areas would both raise potential growth and help ensure that gains in income and 

opportunities improve the living standards of the majority of the population. 

A. Education

49. Access to better and more cost-effective education can raise productivity and

increase the flexibility of U.S. workers to adjust to structural shifts in labor demand or

displacement by technology or trade. There is also broad evidence that investments in education 

can lessen the intergenerational persistence of poverty. There is a significant lifetime income 

premium to completing a college degree, which points to both the strong demand for skills and to 

the adaptability premium that higher education can offer. It is encouraging, therefore, that 70 

percent of U.S. high school graduates enroll in college. However, outcomes are less encouraging: 

only 60 percent of enrollees graduate within 6 years, those graduating have significant debt (median 

of around US$20,000 for those with a bachelor’s degree), and delinquency rates are rising. In 

addition, the aggregate data hides significant disparities in outcomes across both race and family 

income level. This has implications for long-term growth, inequality, and for near-term demand 

(with growing evidence that the high level of student debt is constraining consumption and 

household formation). 

50. Policy solutions would need to focus on a range of areas. In particular:

• K-12 education. Funding can be better prioritized toward early childhood education (including 

instituting universal pre-K) and to support science, technology, engineering, and mathematics 

programs. There is also a strong case to redesign the financing model for public schools to 

reduce funding differences across districts and provide more resources to schools with high 

concentrations of students from low-income households.
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36 INTERNATIONAL MONETARY FUND

• Vocational education. The administration’s support for federal, state, and local efforts to offer 

attractive, non-college career paths (e.g., through apprenticeship and vocational programs) is 

welcome and there is significant scope to expand these programs. 

• Tertiary education. The high levels of private and public expenditure on higher education, 

alongside relatively unimpressive attainment statistics, suggest the need for a greater focus on 

preparing students for college and fostering retention once they are enrolled. Alternative state 

and federal financing options for tertiary education—such as expanding the programs for, and 

lowering the payment caps on, income contingent repayment loans or increasing needs-based 

grant programs—may help increase access for students from lower- and middle-income 

households. Such financing options are proposed in the budget but they are, unfortunately, 

accompanied by significant cuts to overall student loan programs and an intention to increase 

the monthly payment cap for income contingent loans.

51. Authorities’ views. The administration is committed to expanding school choice through 

greater federal funding for charter schools and vouchers for private and religious schools. This will 

be financed, in part, by consolidating and streamlining a range of federal programs that co-fund 

state and local after-school, teacher training, student support, and academic enrichment programs. 

Existing income dependent repayment programs for student loans would be consolidated into one 

standardized program and the cap on monthly payment would be increased to 12.5 percent of 

discretionary income (with forgiveness of the loan after 15 years of payment). Overall federal 

funding of student loans would, however, be reduced in part through the elimination of subsidized 

loan programs.

B. Family-Friendly Benefits

52. The cost and availability of childcare is a constraint to labor force participation. As 

one example, the labor force participation rate for women with children under 6 years old is 66 

percent (around 8 percent below that of similar aged cohorts without young children). It is also of 

1.0

1.5

2.0

2.5

3.0

1.0

1.5

2.0

2.5

3.0

20 30 40 50 60

Spending (percent of GDP)

Degree Attainment, 25-34 year-olds (percent)

Tertiary Education

Sweden

United States

Spain

Germany

Japan

Source: OECD latest available data

United 

Kingdom

Australia

0.0

0.5

1.0

1.5

0.0

0.5

1.0

1.5

2006 2008 2010 2012 2014 2016

Student Debt (US$ trillion)

Source: Federal Reserve. 

Student loans outstanding

(owned and securitized)

Federal Government
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INTERNATIONAL MONETARY FUND 37

concern that one-in-four single parent households are living in poverty. The administration 

recognizes that family-friendly benefits can be an important policy lever to slow the downward 

trend in labor force participation and support low- and middle-income families. In this regard, the 

budget’s intention to create a program that offers six weeks of paid leave to new parents and 

provide help for families struggling with child and dependent care expenses are positive steps.

C. Supporting Low- and Middle-Income Households

53. Mitigating the ongoing hollowing out of middle-income earners and reducing the 

currently high levels of poverty would raise labor supply, boost human capital and 

productivity, and improve living standards. In addition to the reforms discussed above—

education, family-friendly benefits, and expanding the EITC—other policies that could help include: 

• Disability insurance. As proposed in the budget, there is scope to strengthen the design of the 

disability insurance program to provide incentives for beneficiaries to work part time or 

eventually return to full time work (rather than drop out of the labor force). Such a reform ought 

to be undertaken carefully, however, to prevent legitimate recipients being excluded from this 

important safety net.

• Social assistance. There is significant scope to upgrade federal and state-level social programs 

to better help the most vulnerable. “Cliffs” in social benefits—such as Medicaid, the 

Supplemental Nutrition Assistance Program, the Child Health Insurance Program, Temporary 

Assistance for Needy Families, and housing assistance—could be reassessed with a view to 

smoothing the phase-out for the near-poor. This would not only reduce disparities but also 

encourage labor force participation for those earning above, but close to, the federal poverty 

line. There is scope to simplify and unify the various programs underlying the safety net, 

increase the generosity of direct transfer programs, learn from the diversity of experiences at the 

state-level to identify the most effective approaches, and better-target federal payments to 

program outcomes. These improvements to social programs could be undertaken with a 

relatively small budgetary cost.

54. Authorities’ views. There is no rationale to expand existing safety net programs. Welfare 

reform should be geared toward encouraging those individuals that rely on government programs

to return to the workforce. This could be achieved by tightening eligibility for programs (including 

SNAP, EITC, and the child tax credit) and requiring able-bodied adults to work in order to receive 

benefits. The administration has, however, proposed putting in place six weeks of paid parental 

leave funded partially by savings that are generated in the federal unemployment insurance system.

D. Immigration 

55. A skills-based immigration system would enhance labor force participation and 

productivity. Demographic changes will lead to a steady decline in participation in the coming 

years, slowing labor force growth from an annual average of over 1 percent over the last 25 years to 
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38 INTERNATIONAL MONETARY FUND

less than 1⁄2 percent in the coming decade. The dependency ratio—the share of the old and young 

population as percent of the working age population—is expected to rise from about 60 percent 

today to 75 percent by 2037. This is even with around 0.6 million new immigrants entering the labor 

force each year. A comprehensive, skills-based reform of the immigration system has the potential 

to expand the labor force, improve the dependency ratio, and raise the average level of human 

capital. This could have significant positive effects on long-term potential growth and help ease the 

medium-term fiscal challenges. 

56. Authorities’ views. The immigration system should be reformed to encourage meritbased admissions for legal immigrants, prohibit the entry of illegal immigrants, and substantially 

reduce the number of refugees that are permitted to resettle in the U.S. The administration will 

increase spending on border security and law enforcement. Efforts are underway to examine 

inefficiencies in the admission of skilled immigrants under the H1B visa program to avoid 

undercutting local wages and reducing the employment prospects for U.S. citizens.

E. Healthcare

57. Following the significant changes to the U.S. health care system under the previous 

administration, efforts are underway to reshape policies and scale back federal government 

involvement in the health system. Proposed changes include removing the individual and 

employer mandates, eliminating various taxes and subsidies, reversing the Medicaid expansion, and 

giving states greater flexibility and control over health care policy. The balance of evidence—

including the independent analysis of the Congressional Budget Office—suggests that eliminating

penalties for those who choose not to purchase health insurance will either lead to a loss in 

coverage (with likely adverse selection effects as better risks drop out of the insurance markets) or 

necessitate an increase in federal subsidies (to maintain similar levels of coverage). There are also 

important distributional implications with the proposed changes implying a significant increase in 

costs for older and poorer individuals whereas the embedded tax relief would be mostly incident on 

higher income households. There are polarized societal views over the appropriate way forward 

which makes reaching a consensus on policy difficult to achieve.

58. Health care policies should protect those gains in 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. 

This, in turn, will strengthen growth and job creation, reduce economic insecurity associated with 

the lack of health coverage, and have positive effects for the medium-term fiscal position. Such 

changes ought to be undertaken carefully to avoid compromising the pooling of risks (an essential 

foundation for a well-functioning health insurance system) or excluding those with limited incomes 

from the healthcare system. 

59. Mechanisms to contain inflation in the cost of healthcare services need to be 

examined. This could include an evaluation of existing pilot programs that are being undertaken as 

well as an application of new technologies to increase efficiencies and pricing transparency. 
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INTERNATIONAL MONETARY FUND 39

Reducing the growth in healthcare costs will have important implications for the general 

government fiscal position. There also ought to be some assessment of the scope for anti-trust 

actions where the market concentration of providers or insurers has risen and where premiums for 

non-group policies have been rising rapidly.

60. Authorities’ views. In the administration’s view, the Affordable Care Act is fundamentally 

flawed and a new approach is required to improve Medicaid sustainability, target scarce federal 

resources to those most in need, eliminate taxes on investment income and the penalties that 

underpin the individual mandate, and stabilize and reform the individual insurance market. 

Proposed reforms will help families purchase coverage through tax credits and health savings 

accounts. In addition, regulatory oversight will be devolved to the states to make decisions that 

work best for their local markets. In the administration’s assessment, the Congressional Budget 

Office estimate of the loss of coverage under this new legislation attributes an overly large impact of 

the individual mandate on coverage decisions and uses an outdated baseline that projects a far 

healthier market under the status quo than is likely to occur.

STAFF APPRAISAL

61. The favorable near-term outlook is clouded by important medium-term imbalances. 

The U.S. economic model is not working as well as it could in generating broadly shared income 

growth. It is burdened by a rising public debt. The U.S. dollar is moderately overvalued (by around 

10–20 percent) and the external position is moderately weaker than implied by medium-term 

fundamentals and desirable policies. The current account deficit is expected to be close to 3 percent 

of GDP over the medium-term, and the net international investment position has deteriorated 

markedly in the past several years. Most critically, relative to historical performance, post-crisis 

growth has been too low and too unequal.

62. Addressing these issues requires taking steps to spark faster economic and 

productivity growth, stimulate job creation, incentivize business investment, balance the 

budget, bring down the public debt, and create the room to finance priorities such as 

infrastructure. The administration’s objectives are broadly aligned with these priorities but the 

consultation revealed differences in a range of policy areas and left open questions as to whether 

the administration’s proposed policy strategies are best suited to achieve their intended purpose. 

63. Strengthening growth outcomes and ensuring a more broad-based improvement in 

living standards will require a transformation of the U.S. economic model. Such policies should 

include building a more efficient tax system, reprioritizing federal spending, a more effective

regulatory system, labor market reforms, increasing infrastructure spending, improving education 

and developing skills, strengthening healthcare coverage while containing costs, offering familyfriendly benefits, maintaining a free, fair, and mutually beneficial trade regime, and reforming the 

immigration and welfare systems.
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40 INTERNATIONAL MONETARY FUND

64. The right policy package represents an upside to productivity, labor force growth, 

and capital formation as well as to overall living standards. In many cases, these efforts will 

require incremental federal resources (e.g., to finance infrastructure, better education and health 

systems, improved social assistance, and family friendly benefits), which should be accommodated 

within an overall budget envelope that shrinks the federal deficit starting in FY2018 and steadily 

reduces the public debt-GDP ratio. This can be achieved by reprioritizing existing spending,

addressing entitlements, and ensuring tax reform generates a front-loaded increase in the revenueGDP ratio. 

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

since the global financial crisis. There is scope to fine-tune some aspects of the system as has 

been proposed by the U.S. Treasury. However, the current risk-based approach to regulation, 

supervision, and resolution should be preserved.

66. The Federal Reserve should continue to raise policy rates gradually. Given the 

downside risks to inflation and the constraints of the effective lower bound, policymakers should be 

ready to accept some modest, temporary overshooting of its inflation goal that allows inflation to 

approach the 2 percent medium-term target from above. The recent addendum to the policy 

normalization principles and plans provides market participants with a clear path for changes in 

reinvestment policy that will help avoid undue volatility in fixed-income markets.

67. It is recommended that the next Article IV consultation take place on the standard 12-

month cycle. 
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Table 1. United States: Selected Economic Indicators 1/

2016 2017 2018 2019 2020 2021 2022

National production and income

Real GDP 1.6 2.1 2.1 1.9 1.8 1.7 1.7

Net exports 2/ -0.1 -0.3 -0.2 -0.2 -0.2 -0.1 0.0

Total domestic demand 1.7 2.3 2.3 2.0 1.8 1.7 1.7

Private final consumption 2.7 2.2 1.9 2.0 2.0 1.9 1.8

Public consumption expenditure 0.8 0.5 1.4 1.4 0.8 0.7 0.3

Gross fixed domestic investment 0.7 4.3 4.0 2.9 2.4 2.6 2.4

Private fixed investment 0.7 4.7 3.9 2.8 2.3 2.5 2.6

Equipment and software -2.9 3.6 4.9 3.2 2.3 2.6 2.5

Intellectual property products 4.7 4.1 3.8 3.6 4.0 4.0 4.6

Nonresidential structures -2.9 6.4 2.5 1.2 0.3 0.6 0.5

Residential structures 4.9 5.5 3.6 2.3 2.0 2.0 2.0

Public fixed investment 0.8 2.9 4.0 3.4 2.7 2.9 1.8

Change in private inventories 2/ -0.4 0.0 0.0 -0.1 0.0 -0.1 -0.1

Nominal GDP 3.0 3.9 3.9 4.1 3.9 3.8 3.7

Personal saving rate (% of disposable income) 5.7 5.1 5.3 5.2 4.9 4.8 4.7

Private investment rate (% of GDP) 16.3 16.7 17.0 17.0 17.0 17.0 17.1

Unemployment and potential output

Unemployment rate 4.9 4.3 4.3 4.4 4.7 4.9 5.0

Labor force participation rate 62.8 62.9 62.9 62.7 62.4 62.2 61.9

Potential GDP 1.6 1.8 1.9 1.8 1.8 1.8 1.7

Output gap (% of potential GDP) -0.4 -0.1 0.1 0.2 0.2 0.1 0.0

Inflation

CPI inflation (q4/q4) 1.8 2.1 2.5 2.6 2.1 2.2 2.3

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

PCE Inflation (q4/q4) 1.4 1.7 2.2 2.3 1.8 1.9 2.0

Core PCE Inflation (q4/q4) 1.7 1.7 2.0 2.2 2.0 2.0 2.0

GDP deflator 1.3 1.8 1.8 2.1 2.1 2.0 1.9

Interest rates (percent)

Fed funds rate 0.4 1.0 1.6 2.5 2.9 2.9 2.9

Three-month Treasury bill rate 0.3 1.0 1.5 2.4 2.7 2.7 2.7

Ten-year government bond rate 1.8 2.4 2.9 3.5 3.5 3.5 3.5

Balance of payments

Current account balance (% of GDP) -2.4 -2.5 -2.9 -3.0 -3.0 -2.9 -2.8

Merchandise trade balance (% of GDP) -4.1 -4.4 -4.6 -4.8 -4.9 -4.9 -5.1

Export volume (NIPA basis, goods) 0.6 4.1 3.2 4.2 2.8 3.1 4.0

Import volume (NIPA basis, goods) 0.7 4.9 4.5 4.7 3.7 3.5 3.7

Net international investment position (% of GDP) -44.8 -44.5 -45.7 -46.9 -48.2 -49.3 -50.3

Saving and investment (% of GDP)

Gross national saving 18.5 17.7 17.6 17.4 17.4 17.6 17.8

General government -1.8 -1.6 -1.3 -1.4 -1.4 -1.5 -1.6

Private 20.2 19.3 18.9 18.8 18.9 19.1 19.4

Personal 4.3 3.8 4.0 3.9 3.6 3.6 3.6

Business 15.9 15.5 14.9 14.9 15.2 15.6 15.9

Gross domestic investment 19.7 20.1 20.4 20.4 20.4 20.5 20.6

Private 16.3 16.7 17.0 17.0 17.0 17.0 17.1

Public 3.3 3.4 3.4 3.4 3.5 3.5 3.5

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

1/ Components may not sum to totals due to rounding

2/ Contribution to real GDP growth, percentage points

(percentage change from previous period, unless otherwise indicated)

Projections
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42 INTERNATIONAL MONETARY FUND

Table 2. United States: Balance of Payments

Projections

2016 2017 2018 2019 2020 2021 2022

Real exports growth

Goods and services 0.4 3.3 3.1 3.8 2.9 3.4 4.0

Goods 0.6 4.1 3.2 4.2 2.8 3.1 4.0

Services -0.1 1.8 2.8 3.0 3.1 3.9 4.0

Real imports growth

Goods and services 1.1 4.4 3.9 4.1 3.2 3.2 3.4

Goods 0.7 4.9 4.5 4.7 3.7 3.5 3.7

Nonpetroleum goods 0.3 4.8 5.0 5.4 4.2 3.9 4.0

Petroleum goods 6.9 5.8 -0.1 -2.2 -2.9 -1.2 0.0

Services 3.1 2.3 1.1 1.3 1.3 1.5 2.1

Net exports (contribution to real GDP growth) -0.1 -0.3 -0.2 -0.2 -0.2 -0.1 0.0

Nominal exports

Goods and services 12.0 12.2 12.2 12.3 12.5 12.7 12.8

Nominal imports

Goods and services 14.7 15.2 15.5 15.7 15.8 15.9 16.0

Current account

Current account balance -2.4 -2.5 -2.9 -3.0 -3.0 -2.9 -2.8

Balance on trade in goods and services -2.7 -3.0 -3.2 -3.3 -3.2 -3.2 -3.2

Balance on income 0.3 0.5 0.3 0.3 0.3 0.3 0.4

Capital and Financial Account

Capital account balance 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Financial account balance -2.0 -2.9 -2.9 -3.0 -3.0 -2.9 -2.8

Direct investment, net -0.9 -0.1 -0.5 -0.5 -0.4 -0.4 -0.5

Potrfolio investment, net -1.1 -2.2 -2.3 -2.4 -2.0 -1.4 -1.4

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

Other investment, net -0.2 -0.6 0.1 -0.1 -0.5 -0.9 -0.9

Reserve assets, net 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Errors and Omissions 0.4 -0.4 0.0 0.0 0.0 0.0 0.0

Net International Investment Position -44.8 -44.5 -45.7 -46.9 -48.2 -49.3 -50.3

Direct investment, net -1.0 -0.8 -1.3 -1.7 -2.1 -2.4 -2.8

Potrfolio investment, net -40.2 -39.9 -40.9 -41.7 -42.2 -42.2 -42.2

Financial derivatives, net 0.3 0.3 0.3 0.2 0.2 0.2 0.2

Other investment, net -6.0 -6.4 -6.0 -5.8 -6.1 -6.8 -7.4

Reserve assets, net 2.2 2.2 2.2 2.1 2.0 1.9 1.9

Memorandum items

Current account balance (US$ billions) -452 -490 -576 -629 -649 -641 -656

Non-oil trade balance (% of GDP) -2.3 -2.5 -2.7 -2.9 -2.9 -2.8 -2.9

Foreign real GDP growth (%, ar) 2.1 2.5 2.6 2.8 2.7 2.7 2.7

U.S. real GDP growth (%, saar) 1.6 2.1 2.1 1.9 1.8 1.7 1.7

U.S. real total domestic demand growth (saar) 1.7 2.3 2.3 2.0 1.8 1.7 1.7

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

(annual percent change unless otherwise indicated)
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Table 3. United States: Federal and General Government Finances

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Federal government

Revenue 18.2 17.8 17.3 17.7 17.8 18.0 18.1 18.1 18.2 18.2 18.3 18.4

Expenditure 20.7 20.9 20.7 20.7 21.2 21.6 21.9 22.5 22.5 22.4 22.8 23.4

Non-interest 19.5 19.6 19.2 19.1 19.4 19.5 19.7 20.1 20.0 19.9 20.3 20.8

Interest 1.2 1.3 1.4 1.6 1.8 2.0 2.2 2.4 2.5 2.5 2.5 2.6

Budget balance 1/ -2.6 -3.2 -3.4 -3.0 -3.4 -3.5 -3.8 -4.4 -4.3 -4.2 -4.5 -5.0

Primary balance 2/ -1.3 -1.9 -1.9 -1.4 -1.6 -1.5 -1.6 -2.0 -1.8 -1.7 -2.0 -2.4

Primary structural balance 3/ 4/ -1.2 -1.7 -1.9 -1.4 -1.6 -1.5 -1.6 -2.0 -1.8 -1.7 -2.0 -2.4

 Change 1.4 -0.5 -0.2 0.5 -0.2 0.1 -0.1 -0.4 0.2 0.1 -0.3 -0.4

Federal debt held by the public 73.3 77.0 77.3 77.6 77.8 78.3 79.2 80.7 82.1 83.4 84.9 86.9

General government

Revenue 31.8 31.4 31.4 31.8 32.0 32.2 32.3 32.4 32.5 32.6 32.7 32.6

Expenditure 35.3 35.7 35.7 35.7 36.0 36.3 36.6 36.9 36.7 36.6 36.9 36.9

 Net interest 1.9 2.0 2.1 2.2 2.4 2.6 2.8 3.0 3.0 3.1 3.1 3.2

Net lending 1/ -3.5 -4.3 -4.3 -3.9 -4.0 -4.1 -4.3 -4.5 -4.2 -4.0 -4.2 -4.3

Primary balance 2/ -1.6 -2.3 -2.2 -1.7 -1.6 -1.5 -1.5 -1.5 -1.1 -0.9 -1.1 -1.2

Primary structural balance 3/ 4/ -1.5 -1.9 -2.1 -1.7 -1.7 -1.5 -1.5 -1.5 -1.1 -0.9 -1.1 -1.1

 Change 0.9 -0.4 -0.2 0.4 0.0 0.2 0.0 0.0 0.4 0.2 -0.2

Gross debt 105.7 107.4 108.5 108.8 109.1 109.5 110.2 111.2 111.9 112.4 113.0 113.4

incl. unfunded pension liab. 125.9 127.7 129.5 130.0 130.4 130.9 131.7 132.8 133.7 134.3 135.0 135.5

Memorandum items

Federal government deficit

President's latest budget -2.4 -3.2 -3.1 -2.2 -2.5 -2.2 -2.0 -1.8 -1.3 -0.8 -0.6 -0.4

CBO budget assessment -2.5 -2.9 -2.2 -1.9 -2.5 -2.7 -2.9 -3.4 -3.4 -3.2 -3.5 -3.5

CBO baseline (current law) -2.5 -3.2 -2.9 -2.4 -2.9 -3.2 -3.6 -4.2 -4.2 -4.1 -4.5 -4.8

Federal government debt

President's latest budget 73.3 77.0 77.4 76.7 76.2 75.1 73.7 72.2 70.2 67.8 65.3 62.7

CBO budget assessment 73.6 75.4 74.9 74.1 74.1 74.3 74.4 75.0 75.7 76.1 76.7 77.4

CBO baseline (current law) 73.6 77.0 77.5 77.4 77.9 78.8 79.9 81.3 82.6 83.8 85.3 87.0

Sources: Congressional Budget Office; Office of Management and Budget; and IMF staff estimates

1/ Includes staff's adjustments for one-off items, including costs of financial sector support

2/ Excludes net interest

3/ Excludes net interest, effects of economic cycle, and costs of financial sector support

4/ Percent of potential GDP

Note: Fiscal projections are based on the March 2016 Congressional Budget Office baseline adjusted for the 

IMF staff’s policy and macroeconomic assumptions. The baseline incorporates the key provisions of the 

Bipartisan Budget Act of 2015, including a partial rollback of the Sequester spending cuts in fiscal year 2016. 

In fiscal years 2017 through 2021, the IMF staff assumes that the sequester cuts will continue to be partially 

replaced, in proportions similar to those already implemented in fiscal years 2014 and 2015, with back-loaded 

measures generating savings in mandatory programs and additional revenues. Projections also incorporate 

the Protecting American From Tax Hikes Act of 2015, which extended some existing tax cuts for the short term 

and some permanently. Finally, Fiscal projections are adjusted to reflect the IMF staff’s forecasts for key 

macroeconomic and financial variables and different accounting treatment of financial sector support and of 

defined-benefit pension plans and are converted to a general government basis.

(calendar years; GFSM2001 basis)

(fiscal years; budget basis)

(from authorities)

Projections
UNITED STATES

44 INTERNATIONAL MONETARY FUND

Table 4. United States: Core FSIs for Deposit Takers 

Source: IMF staff estimates.

2010 2011 2012 2013 2014 2015 2016

Regulatory Capital to Risk-Weighted Assets 14.8 14.7 14.5 14.4 14.4 14.1 14.2

Regulatory Tier 1 Capital to Risk-Weighted Assets 12.5 12.6 12.7 12.8 13.1 13.1 13.2

Capital to Assets 12.7 12.2 12.0 11.8 11.7 11.7 11.6

Non-performing Loans Net of Provisions to Capital 20.0 17.6 15.7 11.7 8.8 7.2 6.6

Non-performing Loans to Total Gross Loans 4.4 3.8 3.3 2.5 1.9 1.5 1.3

Sectoral Distribution of Total Loans: Residents 96.6 95.6 95.5 95.2 95.6 95.8 96.1

Sectoral Distribution of Total Loans: Deposit-takers 6.0 6.0 6.0 5.0 4.1 3.6 3.8

Sectoral Distribution of Total Loans: Other financial corporations 3.2 3.8 4.4 5.2 6.2 6.7 6.7

Sectoral Distribution of Total Loans: General government 0.8 0.9 1.1 1.2 1.3 1.4 1.5

Sectoral Distribution of Total Loans: Nonfinancial corporations 32.5 31.8 32.1 33.3 34.2 35.0 35.5

Sectoral Distribution of Total Loans: Other domestic sectors 54.2 53.1 51.9 50.5 49.8 49.1 48.5

Sectoral Distribution of Total Loans: Nonresidents 3.4 4.4 4.5 4.8 4.4 4.2 3.9

Return on Assets 0.2 0.3 0.3 0.4 0.3 0.4 0.4

Return on Equity 1.8 2.3 2.7 3.3 2.8 3.0 3.2

Interest Margin to Gross Income 63.6 65.2 60.8 63.5 63.7 63.4 65.1

Non-interest Expenses to Gross Income 62.5 64.5 63.6 61.7 64.7 60.7 59.6

Liquid Assets to Total Assets (Liquid Asset Ratio) 10.8 12.7 13.4 14.5 14.5 13.2 12.8

Liquid Assets to Short Term Liabilities 47.3 66.1 74.1 88.3 90.0 91.2 98.2

Other Financial Corporations

Assets to Total Financial System Assets 37.7 37.1 37.2 36.0 35.4 34.7 34.6

Assets to Gross Domestic Product (GDP) 362.1 350.8 362.7 367.5 366.2 355.2 359.9

Non-financial Corporations Sector

Total Debt to Equity 62.2 61.8 62.6 58.2 58.9 57.2 54.6

Return on Equity 7.7 7.9 7.9 7.1 7.3 6.3 5.8

Market Liquidity

Average Bid-Ask Spread in the Securities Market 0.1 0.1 0.1 0.1 0.1 0.1 0.1

Average Daily Turnover Ratio in the Securities Market 5.0 3.8 3.4 3.4 3.1 2.7 3.0

Real Estate Markets

Residential Real Estate Prices -3.4 -0.8 7.9 10.2 5.0 5.4 6.1

Commercial Real Estate Prices 11.2 9.1 5.3 15.5 10.4 9.6 5.9

Residential Real Estate Loans to Total Loans 36.5 35.6 34.3 33.0 32.1 31.6 31.0

Commercial Real Estate Loans to Total Loans 17.1 15.8 15.2 15.5 15.7 16.1 16.4

Percent unless stated otherwise
Unit

United States Overall Assessment

Foreign asset 

and liability 

position and 

trajectory

Background. The net international investment position (NIIP) declined from -16.8 per cent of GDP in 2010 to -43.7

percent of GDP in 2016. This reflects continuous current account deficits, stronger performance of the U.S. stock 

market relative to trading partners, and valuation changes of foreign currency denominated assets. 1/ Under staff’s 

baseline scenario, U.S. NIIP would deteriorate by about 10 percentage points of GDP over the next five years, as a 

consequence of persistent current account deficits. 

Assessment. Financial stability risks could surface due to an unexpected decline in foreign demand for U.S. debt 

securities, which represent the major component of the country’s external liabilities. This could, for example, result 

from a failure to reestablish long-run fiscal sustainability. Although such risks have risen, they remain moderate 

given the dominant status of U.S. dollar as a reserve currency (accounting for 60 percent of global reserves). Most 

U.S. foreign assets are denominated in foreign currency and over 50 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.

Overall Assessment:

The U.S. external position was moderately 

weaker than implied by medium-term 

fundamentals and desirable policies in 2016.

The U.S. external position, assessed 

imbalances, and fiscal policy gaps have 

improved considerably since the crisis.

However, the U.S. economy’s performance 

and the divergence of U.S. growth and 

monetary policy prospects from key trading 

partners have led to a strengthening of the 

U.S. dollar since 2014. There is a risk that a 

shift in the policy mix toward a larger fiscal 

deficit could lead to a further weakening of 

the CA and a strengthening of the currency, 

away from levels justified by medium term 

fundamentals and desirable policies. 

However, the possible adoption of farreaching policy measures (e.g., a corporate 

tax overhaul, imposition of tariffs, changes 

in immigration policies) adds substantial 

uncertainty to this year’s assessment.

Potential policy responses:

Over time, fiscal consolidation will be 

necessary to lower the debt-GDP ratio and 

should aim for a general government 

primary surplus of about 3⁄4 percent of GDP 

(a federal government primary surplus of 

about 1 percent of GDP). Structural policies 

should be implemented, within the 

budgetary envelope implied by a declining 

fiscal deficit, to raise productivity. These 

would include infrastructure investment, 

tax reform, better schooling and training of 

workers, measures to support the working 

poor, and policies to increase growth in the 

labor force. On net, such policies should, 

over time, raise 

efficiency, lift productivity, and reduce the 

CA deficit.

Current 

account 

Background. The U.S. current account (CA) deficit has narrowed from its pre-crisis maximum of 6 percent of GDP 

to 2.4 percent of GDP in 2016, owing to a reduction in the fiscal deficit, higher private saving, lower investment in 

the aftermath of the financial crisis, and a stronger energy trade balance (reflecting both lower oil prices and the 

rapid increase of unconventional energy production). 2/ The CA deficit is expected to increase from 2016 through 

the medium-term as a consequence of a stronger U.S. economy, the recent appreciation of the U.S. dollar and an 

assumed fiscal expansion.

Assessment. The EBA model estimates show a cyclically-adjusted CA gap of -1.0 percent of GDP for 2016, partly 

reflecting policy gaps, but mainly the result of an unidentified policy residual of -0.6 percent of GDP. There is, 

however, uncertainty about the magnitude of the gap; for instance, related to the discovery of shale oil, which 

could entail a wealth effect, likely lowering the CA norm and reducing the CA gap somewhat. 3/ The staff’s view is 

that, on balance, the 2016 cyclically-adjusted CA is between -0.7 and -1.7 percent weaker than the level implied by 

medium-term fundamentals and desirable policies.

Real 

exchange 

rate

Background. The real effective exchange rate (REER) appreciated in 2016 by about 3.1 percent compared to 2015. 

This is due to stronger U.S. economic performance relative to other countries and divergence of U.S. growth and 

monetary policy prospects from key trading partners. As of May 2017, the REER has appreciated about 0.7 percent 

relative to the 2016 average.

Assessment. Indirect estimates of the REER (based on the EBA current account assessment) imply that the 

exchange rate was overvalued by between 10 to 20 percent in 2016. The EBA REER index analysis suggests an 

overvaluation of 15.8 percent. Considering all the estimates and their uncertainties, staff assess the 2016 average 

REER as moderately overvalued within a range of 10 to 20 percent, compared to the level implied by medium-term 

fundamentals and desirable policies.

Capital and

financial 

accounts 

Background. Net financial inflows were about 3 percent of GDP in 2016 substantially below pre-crisis levels of 

about 5 percent of GDP. Portfolio inflows increased by about 1 percent, year over year, in 2016 but were offset by 

weaker direct investment and other inflows. There were also further increases in U.S. portfolio investment overseas, 

but less such outflows than the previous year. The foreign demand for U.S. Treasury securities is likely to be 

supported further by the stronger outlook for the U.S. economy compared to key trading partners, the status of the 

dollar as reserve currency and safe haven motives. 

Assessment. The U.S. has a fully open capital account. Vulnerabilities are limited by the dollar’s status as a reserve 

currency and the U.S. role as a safe haven.

INTERNATIONAL MONETARY FUND 45

UNITED STATES UNITED STATES

Annex I. External Sector Assessment
United States (concluded)

FX 

intervention 

and reserves 

Assessment. The dollar has the status of a global reserve currency. Reserves held by the U.S. are typically low 

relative to standard metrics but the currency is free floating.

Technical 

Background 

Notes

1/ The U.S. has a positive net equity position, with sizable portfolio equity and direct investment abroad, and a 

negative debt position vis-à-vis the rest of the world, owing to sizeable foreign holdings of U.S. Treasuries and 

corporate bonds. 

2/ The oil and gas portion of the CA had a deficit of 0.4 percent of GDP in 2016, compared to a deficit of 0.6 

percent of GDP in 2015.

3/ For instance, at an oil price of $60 price per barrel, the implied wealth gains owing to the shale discovery are 

estimated to lower the current account norm by about 0.25 percentage points of GDP.

46 INTERNATIONAL MONETARY FUND

UNITED STATES
UNITED STATES

INTERNATIONAL MONETARY FUND 47

Annex II. Public Debt Sustainability Analysis

The budget deficit in the United States has been reduced significantly over the past few years. Yet, the 

public debt ratio remains on an unsustainable trajectory over the medium term. Under the baseline 

scenario, public debt is projected to continue rising as age-related spending pressures on entitlement 

programs assert themselves and interest rate normalize. Gross financing needs are large, but 

manageable given the global reserve currency status of the United States. However, a very different 

composition of adjustment (i.e., with a reprioritization of budget programs, and a revenue-gaining tax 

reform, both aimed at boosting potential growth) would be more desirable, sustainable and, thus, 

more credible.

1. Background. Significant fiscal consolidation measures were legislated in 2011–13 to tackle 

the high public debt ratio, which has doubled at the federal government level since 2007 because of 

the financial crisis and the ensuing recession. The Bipartisan Budget Acts of 2013 and 2015 partially 

reversed the cuts scheduled to take place in FY2014-2017, replacing them with savings generated 

through cuts to mandatory spending in later years and, thus, improving the pace and distribution of 

near-term deficit reduction. On the other hand, the Tax Act of 2015, extended many tax cuts 

through the medium term and made some permanent, leading to higher deficits in the medium and 

long term. The President’s FY2018 budget suggests a substantial fiscal adjustment in the outer years 

based on non-defense discretionary spending cuts and curtailment of social assistance programs.

Given the significant policy uncertainty, the staff’s baseline is based on current laws.

2. Baseline. Staff’s baseline assumes unchanged policies, except (as in past years) that the 

automatic spending cuts planned after FY2017 would be partially reversed in a similar way as the 

deals reached in the Bipartisan Budget Acts of 2013 and 2015. Under the baseline, public debt is 

projected to continue rising as age-related spending pressures on entitlement programs assert 

themselves and interest rate normalize. Federal debt held by the public is projected to increase from 

about 77 percent of GDP in 2016 to around 88

percent of GDP in 2026, with general government 

gross debt rising from about 107 percent of GDP 

to around 113 percent of GDP by 2026.

3. Adjustment scenario. The 2016 general 

government primary deficit was 2.3 percent of 

GDP. In staff’s view, aiming for a medium-term 

general government primary surplus of about 

3⁄4 percent of GDP (a federal government surplus 

of about 1 percent of GDP) would be appropriate 

to put the public debt ratio firmly on a downward 

path. The target primary surplus would have to be 

higher in the long run to bring the debt ratio closer to pre-crisis levels by 2030.

68

72

76

80

84

88

92

68

72

76

80

84

88

92

2016 2018 2020 2022 2024 2026

Federal Debt Held by the Public

(percent of GDP, fiscal year)

Source: IMF staff estimates

Baseline

Adjustment
UNITED STATES

48 INTERNATIONAL MONETARY FUND

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 current historical lows and reach 

about 4.3 percent by 2026 (compared to an average of about 31⁄2 percent over 2006–16). 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 mean a debt ratio that 

is about 10 percentage points above the baseline (i.e., the public debt in 2026 would be around 125 

percent of GDP). If real GDP growth turns out 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 slippage in the planned consolidation over the next two years would increase 

public debt by about 5 percentage points above the baseline in 2026. A combined macro-fiscal 

shock could raise the public debt ratio to as high as 140 percent of GDP by 2026. 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.
UNITED STATES

INTERNATIONAL MONETARY FUND 49

United States: Public DSA – Baseline Scenario

As of June 30, 2017

2006–2014 2/ 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Sovereign Spreads

Nominal gross public debt 88.8 105.6 107.4 108.5 109.0 109.2 109.4 110.1 111.2 112.2 112.4 112.8 113.4 Spread (bp) 3/ 184

Public gross financing needs 17.3 13.8 17.2 24.1 20.2 19.4 18.8 20.3 20.0 20.8 20.8 22.0 21.9 CDS (bp) 6

Real GDP growth (percent) 1.3 2.6 1.6 2.1 2.1 1.9 1.8 1.7 1.7 1.7 1.7 1.7 1.7 Ratings Foreign Local

Inflation (GDP deflator, percent) 1.9 1.1 1.3 1.8 1.8 2.1 2.1 2.0 1.9 1.9 1.9 1.9 1.9 Moody's Aaa Aaa

Nominal GDP growth (percent) 3.2 3.7 3.0 3.9 3.9 4.1 3.9 3.8 3.7 3.7 3.7 3.7 3.7 S&Ps AA+ AA+

Effective interest rate (percent) 4/ 3.5 2.3 2.5 1.2 2.0 2.2 2.6 3.0 3.3 3.6 3.9 4.1 4.3 Fitch AAA AAA

2006–2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Cumulative

Change in gross public sector debt 4.4 0.4 1.7 1.1 0.5 0.2 0.2 0.7 1.1 1.0 0.2 0.4 0.5 6.0

Identified debt-creating flows 4.8 0.2 1.8 -0.7 -0.4 -0.3 0.1 0.6 1.1 1.1 1.2 1.4 1.6 5.7

Primary deficit 4.8 1.6 2.3 2.2 1.7 1.6 1.5 1.5 1.5 1.1 0.9 0.9 0.9 13.7

Primary (noninterest) revenue and grants 29.7 31.3 30.9 30.9 31.2 31.3 31.4 31.5 31.5 31.6 31.6 31.7 31.7 314.4

Primary (noninterest) expenditure 34.5 32.9 33.2 33.0 32.8 32.9 32.9 32.9 33.0 32.7 32.6 32.6 32.6 328.1

Automatic debt dynamics 5/ 0.0 -1.4 -0.5 -2.8 -2.0 -1.9 -1.4 -0.9 -0.4 0.0 0.2 0.5 0.7 -8.0

Interest rate/growth differential 6/ 0.0 -1.4 -0.5 -2.8 -2.0 -1.9 -1.4 -0.9 -0.4 0.0 0.2 0.5 0.7 -8.0

Of which: real interest rate 1.2 1.3 1.2 -0.6 0.2 0.1 0.5 0.9 1.4 1.8 2.1 2.3 2.5 11.1

Of which: real GDP growth -1.1 -2.6 -1.7 -2.2 -2.2 -2.0 -1.9 -1.8 -1.8 -1.8 -1.8 -1.8 -1.8 -19.1

Exchange rate depreciation 7/ 0.0 0.0 0.0 ... ... ... ... ... ... ... ... ... ... ...

Other identified debt-creating flows 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net privatization proceeds 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Contingent liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other liabilities (bank recap. and PSI sweetner) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Residual, including asset changes 8/ -0.4 0.2 -0.1 1.8 0.9 0.5 0.1 0.1 0.0 -0.1 -1.0 -1.0 -1.0 0.3

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/

0.7

(percent of GDP, unless otherwise indicated)

Actual

Contribution to Changes in Public Debt

Actual Projections

Projections

-6

-1

4

9

-5

0

5

10

15

20

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Primary deficit Real GDP growth

Real interest rate Exchange rate depreciation

Other debt-creating flows Residual

Projections

Debt-Creating Flows

(percent of GDP)

-30

-20

-10

0

10

20

30

40

cumulative
UNITED STATES

50 INTERNATIONAL MONETARY FUND

United States: Public DSA –Realism of Baseline Assumptions

Source : IMF staff

1/ Plotted distribution includes all countries, percentile rank refers to all countries. Projections made in the spring WEO vintage of the preceding year

2/ Data cover annual obervations from 1990 to 2011 for advanced and emerging economies with debt greater than 60 percent of GDP. Percent of sample on vertical axis

Forecast Track Record, versus all countries

Assessing the Realism of Projected Fiscal Adjustment Boom-Bust Analysis

-10

- 8

- 6

- 4

- 2

0

2

4

6

-10

- 8

- 6

- 4

- 2

0

2

4

6

2007 2008 2009 2010 2011 2012 2013 2014 2015

Year 2/

Real GDP Growth

Interquartile range (25-75) Median

-0.52 Has a percentile rank of: 49%

United States median forecast error, 2007-2015:

Distribution of forecast errors: 1 /

(Percent, actual-projection)

-14

-12

-10

- 8

- 6

- 4

- 2

0

2

4

-10

- 8

- 6

- 4

- 2

0

2

4

2007 2008 2009 2010 2011 2012 2013 2014 2015

Year 2/

Primary Balance

Interquartile range (25-75) Median

-0.28 Has a percentile rank of: 48%

United States median forecast error, 2007-2015:

Distribution of forecast errors: 1 /

(Percent of GDP, actual-projection)

- 8

- 6

- 4

- 2

0

2

4

6

8

1 0

- 8

- 6

- 4

- 2

0

2

4

6

8

1 0

2007 2008 2009 2010 2011 2012 2013 2014 2015

Year 2/

Inflation (Deflator)

Interquartile range (25-75) Median

0.24

Has a percentile rank of: 54%

United States median forecast error, 2007-2015:

(Percent, actual-projection)

Distribution of forecast errors: 1 / pessimistic optimistic

-6

-4

-2

0

2

4

6

8

t-5 t-4 t-3 t-2 t-1 t t+1 t+2 t+3 t+4 t+5

Real GDP growth

(Percent)

Not applicable 

for United States

0

2

4

6

8

1 0

1 2

1 4

0

2

4

6

8

1 0

1 2

1 4 Less-4-3-2-1

012345678

Distribution 2/

United States

3-Year Adjustment in Cyclically-Adjusted 

Primary Balance (CAPB)

(Percent of GDP) More

3-year CAPB adjustment 

greater than 3 percent of 

GDP in approx. top quartile

0

2

4

6

8

1 0

1 2

0

2

4

6

8

1 0

1 2 Less-4-3-2-1

012345678

Distribution 2/

United States

3-Year Average Level of Cyclically-Adjusted 

Primary Balance (CAPB)

(Percent of GDP) More

3-year average CAPB level 

greater than 3.5 percent of 

GDP in approx. top quartile
UNITED STATES

INTERNATIONAL MONETARY FUND 51

United States: Public DSA–Composition of Public Debt and Alternative Scenarios

Baseline Historical Constant Primary Balance

Baseline scenario 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 Historical scenario 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Real GDP growth 2.1 2.1 1.9 1.8 1.7 1.7 1.7 1.7 1.7 1.7 Real GDP growth 2.1 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.3

Inflation 1.8 1.8 2.1 2.1 2.0 1.9 1.9 1.9 1.9 1.9 Inflation 1.8 1.8 2.1 2.1 2.0 1.9 1.9 1.9 1.9 1.9

Primary balance -2.2 -1.7 -1.6 -1.5 -1.5 -1.5 -1.1 -0.9 -0.9 -0.9 Primary balance -2.2 -4.7 -4.7 -4.7 -4.7 -4.7 -4.7 -4.7 -4.7 -4.7

Effective interest rate 1.2 2.0 2.2 2.6 3.0 3.3 3.6 3.9 4.1 4.3 Effective interest rate 1.2 2.0 2.5 3.0 3.6 4.1 4.5 4.8 5.0 5.2

Constant primary balance scenario

Real GDP growth 2.1 2.1 1.9 1.8 1.7 1.7 1.7 1.7 1.7 1.7

Inflation 1.8 1.8 2.1 2.1 2.0 1.9 1.9 1.9 1.9 1.9

Primary balance -2.2 -2.2 -2.2 -2.2 -2.2 -2.2 -2.2 -2.2 -2.2 -2.2

Effective interest rate 1.2 2 2 3 3 3 4 4 4 4

Source: IMF staff

(Percent)

Composition of Public Debt

Alternative Scenarios

Underlying Assumptions

0

20

40

60

80

100

120

140

2008 2010 2012 2014 2016 2018 2020 2022 2024 2026

By Maturity 

(Percent of GDP)

Medium and long-term

Short-term

projection

0

25

50

75

100

125

150

175

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Gross Nominal Public Debt

(Percent of GDP)

0

20

40

60

80

100

120

140

2008 2010 2012 2014 2016 2018 2020 2022 2024 2026

By Currency

(Percent of GDP)

Local currency-denominated

Foreign currency-denominated projection

0

5

10

15

20

25

30

35

40

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Public Gross Financing Needs

(Percent of GDP)
UNITED STATES

52 INTERNATIONAL MONETARY FUND

United States: Public DSA–Stress Tests

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Primary Balance Shock Real GDP Growth Shock

Real GDP growth 2.1 2.1 1.9 1.8 1.7 1.7 1.7 1.7 1.7 1.7 Real GDP growth 2.1 0.4 0.2 1.8 1.7 1.7 1.7 1.7 1.7 1.7

Inflation 1.8 1.8 2.1 2.1 2.0 1.9 1.9 1.9 1.9 1.9 Inflation 1.8 1.4 1.7 2.1 2.0 1.9 1.9 1.9 1.9 1.9

Primary balance -2.2 -3.4 -3.4 -1.5 -1.5 -1.5 -1.1 -0.9 -0.9 -0.9 Primary balance -2.2 -3.1 -2.5 -2.8 -1.5 -1.5 -1.1 -0.9 -0.9 -0.9

Effective interest rate 1.2 2.0 2.3 2.8 3.1 3.5 3.7 4.0 4.2 4.3 Effective interest rate 1.2 2.0 2.3 2.6 3.0 3.4 3.7 3.9 4.1 4.3

Real Interest Rate Shock Real Exchange Rate Shock

Real GDP growth 2.1 0.9 0.9 1.2 1.3 1.5 1.5 1.5 1.5 1.5 Real GDP growth 2.1 1.6 1.7 1.8 1.7 1.7 1.7 1.7 1.7 1.7

Inflation 1.8 1.8 2.1 2.1 2.0 1.9 1.9 1.9 1.9 1.9 Inflation 1.8 1.9 2.1 2.1 2.0 1.9 1.9 1.9 1.9 1.9

Primary balance -2.2 -1.7 -1.6 -1.5 -1.5 -1.5 -1.1 -0.9 -0.9 -0.9 Primary balance -2.2 -2.2 -2.1 -1.5 -1.5 -1.5 -1.1 -0.9 -0.9 -0.9

Effective interest rate 1.2 2.0 2.4 2.9 3.4 3.9 4.3 4.6 4.9 5.1 Effective interest rate 1.2 2.0 2.2 2.6 2.9 3.3 3.6 3.9 4.0 4.2

Combined Shock Contingent Liability Shock

Real GDP growth 2.1 0.4 0.2 1.2 1.3 1.5 1.5 1.5 1.5 1.5 Real GDP growth 2.1 0.4 0.2 1.8 1.7 1.7 1.7 1.7 1.7 1.7

Inflation 1.8 1.4 1.7 2.1 2.0 1.9 1.9 1.9 1.9 1.9 Inflation 1.8 1.4 1.7 2.1 2.0 1.9 1.9 1.9 1.9 1.9

Primary balance -2.2 -3.7 -3.5 -2.8 -1.5 -1.5 -1.1 -0.9 -0.9 -0.9 Primary balance -2.2 -8.1 -1.6 -1.5 -1.5 -1.5 -1.1 -0.9 -0.9 -0.9

Effective interest rate 1.2 2.0 2.5 3.0 3.5 3.9 4.3 4.6 4.9 5.1 Effective interest rate 1.2 2.1 2.4 2.7 3.1 3.4 3.7 3.9 4.1 4.3

Source: IMF staff

Underlying Assumptions

(Percent)

Additional Stress Tests

Macro-Fiscal Stress Tests

Combined Macro-Fiscal Shock

Baseline

Real GDP Growth Shock

Baseline

Primary Balance Shock Real Interest Rate Shock

Contingent Liability Shock

Real Exchange Rate Shock

90

95

100

105

110

115

120

125

130

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Gross Nominal Public Debt

(Percent of GDP)

250

270

290

310

330

350

370

390

410

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Gross Nominal Public Debt

(Percent of Revenue)

10

14

18

22

26

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Public Gross Financing Needs

(Percent of GDP)

90

95

100

105

110

115

120

125

130

135

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Gross Nominal Public Debt

(Percent of GDP)

250

270

290

310

330

350

370

390

410

430

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Gross Nominal Public Debt

(Percent of Revenue)

10

12

14

16

18

20

22

24

26

28

30

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026

Public Gross Financing Needs

(Percent of GDP)
UNITED STATES

INTERNATIONAL MONETARY FUND 53

United States: Public DSA–Risk Assessment

United States

Source: IMF staff

5/ Includes liabilities to the Eurosystem related to TARGET

4/ An average over the last 3 months, 16-Mar-17 through 14-Jun-17

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

 Heat Map Baseline (2015-2025)

Real Interest 

Rate Shock

External 

Financing 

Requirements

Real GDP 

Growth Shock Gross financing needs 2/

Debt level 1/ Real GDP 

Growth Shock

Primary 

Balance Shock

Primary 

Balance Shock

Exchange Rate 

Shock

Contingent 

Liability shock

Real Interest 

Rate Shock

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

1.2%

1 2

Not applicable 

400 for United States

600

1 2

198 bp

1 7

2 5

1 2

31%

Bond Spread over 

German Bonds

External Financing 

Requirement 5/

Annual Change in 

Short-Term Public 

Debt

Public Debt in 

Foreign Currency

(Basis points) 4/ (Percent of GDP) (Percent of total) (Percent of total)

0

40

8 0

120

160

2016 2018 2020 2022 2024 2026

Baseline Percentiles: 10th-25th 25th-75th 75th-90th

Symmetric Distribution

0

4 0

8 0

120

160

2016 2018 2020 2022 2024 2026

Restricted (Asymmetric) Distribution

no restriction on the growth rate shock

no restriction on the interest rate shock

3 is the max positive pb shock (percent GDP)

no restriction on the exchange rate shock

Restrictions on upside shocks:

3 0

4 5

1 2

27%

Public Debt Held 

by Non-Residents

(Percent of total)
# 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 follow-up 

actions for each material 

threat identified 

The FSOC’s 2015 and 2016 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. Specific 

timelines and responsible agencies are not identified, however

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.

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; 

Partially 

implemented.

Annex III. Implementation of FSAP Recommendations

54 INTERNATIONAL MONETARY FUND

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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.

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 de-designated GECC in June 2016.

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 of proposed rulemaking 

to apply EPS for the systemically important insurance companies as designated by the 

FSOC. In line with 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.

Partially 

implemented.

INTERNATIONAL MONETARY FUND 55

UNITED STATES
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 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 person 

the Commodities Futures Exchange 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 2011 

access requirements such that certain domestic authorities may obtain swap data 

access efficiently. The domestic authorities include: prudential regulators; the FSOC; the 

Partially 

implemented. 

 

1

For the summary of the bilateral repo data collection, see https://www.financialresearch.gov/data/repo-data-project/, for the summary of the securities lending 

data collection, see https://www.financialresearch.gov/data/securities-lending-data-collection-project/. 

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56 INTERNATIONAL MONETARY FUND

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S; the Department of Justice; any Federal Reserve Bank; and the OFR. The comment 

period for the proposed revisions closed in March 2017.

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 single-counterparty credit risk. The 

proposal would apply credit limits to Bank Holding Companies (BHCs) with total 

Partially 

implemented.

INTERNATIONAL MONETARY FUND 57

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consolidated assets of $50 billion or more. Specifically: (i) GSIBs would be restricted to 

a credit exposure of no more than 15 percent of the firm’sTier 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: Supervisory guidance and reporting 

requirements in operational risk have not been updated to reflect FSAP 

recommendations. The approach to interest rate risk in the banking book does not 

include specific capital charges or limits being set under Pillar 2. US guidance with 

respect to IRR instead 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. 

58 INTERNATIONAL MONETARY FUND

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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, 

Partially 

implemented.

UNITED STATES

INTERNATIONAL MONETARY FUND 59
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. 

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 

Publicly available information suggests no progress has been made towards 

implementation of the FSAP recommendation.

Not 

implemented.

Increase examination 

coverage of asset 

managers 

The FSAP recommended that the SEC needs to be better equipped in order to be able 

to significantly increase the number of asset manager examinations from the current 

coverage of only around 10 percent of investment advisers per year. 

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% of investment 

Partially

implemented.

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60 INTERNATIONAL MONETARY FUND
advisers in fiscal year 2016 and expects to examine 13% of investment advisers in fiscal 

years 2017 and 2018.

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.

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. The Equity Market Structure 

Advisory Committee is one vehicle by which the SEC gathers data and information 

about equity market structure and it continues to meet on a quarterly basis. See 

http://www.sec.gov/spotlight/equity-market-structure-advisory-committee.shtml. In 

addition, SEC staff continually evaluates equity market structure. SEC staff analysis is 

published on the SEC website at http://www.sec.gov/marketstructure/ 

Partially 

implemented. 

Stress testing

14 Conduct liquidity stress 

testing for banks and 

nonbanks on a regular 

basis; run regular 

network analyses; and 

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 

Partially 

implemented.

INTERNATIONAL MONETARY FUND 61

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link liquidity, solvency, 

and network analyses 

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.

Further, as discussed by former Governor Tarullo in his September 2016 speech, the 

Federal Reserve is undertaking a research program to better understand the 

quantitative consequences of new risks and business activities, potential amplification 

channels such as fire sales, and dynamics between capital and liquidity positions. Some 

of the ideas stemming from that research may inform the evolution of the stress testing 

regime. 

Authorities finalized a rule implementing the Liquidity Coverage Ratio (LCR), and more 

recently proposed a Net Stable Funding Ratio (NSFR), 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. Both required and available stable funding in the NSFR are subject to stress 

(runoff rates and haircuts on the value of liquid assets). Hence, the NSFR contains 

elements of a liquidity stress test, as well. However, stress testing exercises, like the DFA 

stress tests or the CCAR, focus on credit and market risk, not on funding and market 

liquidity risk. Authorities do not yet conduct, on regular basis, liquidity stress tests on 

nonbanks. However, the SEC requires MMFs to conduct regular stress tests, including 

on their liquidity, and certain of the largest broker-dealers are providing additional 

UNITED STATES

62 INTERNATIONAL MONETARY FUND
information regarding their liquidity risk so SEC staff can better monitor the firm’s 

management of that risk.

Network analysis, and integration with liquidity and solvency stress tests. The DFA stress 

tests or the CCAR do not integrate different risk classes beyond credit and market risk. 

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 a review of the liquidity stress testing practices, liquidity 

position, and liquidity risk management practices of systemically important banking 

organizations through its annual Comprehensive Liquidity Analysis and Review (CLAR) 

Program. In CLAR, supervisors assess the adequacy of firms' liquidity positions relative 

to their unique risks and test the reliability of these firms' approaches to managing 

liquidity risk. CLAR provides a regular opportunity for supervisors to respond to 

evolving liquidity risks and firm practices over time. CLAR involves evaluations of firms' 

liquidity positions both through a range of supervisory liquidity metrics and through 

analysis of firms' internal stress tests. CLAR also 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 

Partially 

implemented. 

INTERNATIONAL MONETARY FUND 63

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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

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 consultation process with the public, 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 advisers of separately managed accounts; 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; operational 

functions; securities lending; 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 mutual funds, including stress testing; the issuance of 

guidelines on funds’ holdings of less liquid assets; enhanced reporting as well as public 

disclosure; and the reallocation of redemption costs. In October 2016, the SEC 

finalized certain 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 stressed conditions and 

the fund’s cash flow projections in stressed conditions. The SEC adopted enhanced 

data reporting provisions for registered investment companies that requires open-end 

funds to disclose certain information regarding the liquidity of the funds’ holdings and 

Partially 

implemented.

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64 INTERNATIONAL MONETARY FUND
liquidity risk management practices. The SEC 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.

Market-based finance 

and systemic liquidity

17 Change redemption 

structures for mutual 

funds (MF) to lessen 

incentives to run; move 

all money market mutual 

funds (MMMFs) to 

variable net asset value 

(NAV) approaches

FSOC 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 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. 

The report welcomed the SEC’s September 2015 proposed rule for MFs and ETFs 

designed to enhance liquidity risk management by funds, provide new disclosures 

regarding fund liquidity, and allow funds to adopt swing pricing to pass on transaction 

costs to entering and exiting investors. Regulators should 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 advisers of separately 

managed accounts and mandated that open-end funds have liquidity risk management 

programs with certain required elements. The SEC also adopted rules permitting openend 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.

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 

Partially 

implemented.

INTERNATIONAL MONETARY FUND 65

UNITED STATES
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 runrisk, 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 triparty book through pre-committed lines (incurring a capital charge). The TPR market 

remains vulnerable to fire-sale risk. Furthermore, there is full alignment of the general 

collateral finance (GCF) repo service offered by one U.S. CCP, which allows securities 

dealers to enter into repo transactions on a blind brokered basis using U.S. government 

securities as collateral, with the implementation of the changes to the triparty 

settlement process per the industry task force’s recommendation, and with the U.S. CCP 

offering the GCF service suspending the inter-dealer GCF repo activity as of July 15, 

2016. 

Risk of fire-sales of collateral by a dealer losing access to repo or by a dealer’s creditors: 

Although the risk of collateral fire-sales has reduced through the introduction of capital 

and liquidity regulations for broker-dealers, it remains a significant risk that warrants 

attention. 

Intraday counterparty risk exposure in the tri-party repurchase (repo) market contracted 

significantly in recent years. The potential for fire sales of collateral by creditors of a

defaulted broker-dealer also remains a significant risk. Additionally, data gaps continue 

to limit regulators’ ability to monitor the aggregate repo market and identify 

interdependencies among firms and market participants. Regulators will need to 

monitor market responses to new SEC money market mutual fund (MMF) rules, which

Implemented.

66

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INTERNATIONAL MONETARY FUND
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 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. 

Partially 

implemented. 

20 Strengthen broker-dealer 

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 

Partially 

implemented. 

UNITED STATES

INTERNATIONAL MONETARY FUND 67
clearinghouses. This measure also helps ensure that a default of a major OTC 

derivatives market participant would not bring down the system. As CCPs take on such 

a central role in today’s financial markets, it is critical that CCPs be both resilient and 

resolvable. 

In December 2015, the SEC proposed rules on the use of derivatives by registered 

investment companies, limiting leverage generated through derivatives, and requiring 

formalized risk management programs for funds with particularly complex derivatives 

structures.

In October 2015, FRB, Federal Deposit Insurance Corporation (FDIC), 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 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

The European Commission (EC) and the CFTC last year reached agreement on the 

Common Approach for Transatlantic CCPs OTC Derivatives Reform agenda, which will 

allow the European Securities and Markets Authority (ESMA) to recognize U.S. CCPs as 

‘equivalent’ to EU CCPs for the purpose of providing their services in the European 

Union (EU) while complying with CFTC requirements. Reciprocally, EU CCPs will also be 

permitted to provide services to U.S. clearing members and clients while complying 

with certain corresponding EU requirements. As a result, derivatives clearing become 

harmonized across the Atlantic. However, international bodies and supervisory bodies 

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68 INTERNATIONAL MONETARY FUND
should continue to develop standards and rules as market infra- and microstructure 

evolves. Broader international harmonization of standards, beyond the U.S.-EU, would 

help reduce the potential for regulatory arbitrage, and further enhance the stability of 

critical market infrastructure. 

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’s adopted new reporting requirements for registered 

investment companies, which include information about their securities lending 

activities. 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.

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. 

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 

Partially 

implemented.

INTERNATIONAL MONETARY FUND 69

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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.

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.

Not 

implemented.

25 Extend the Orderly 

Liquidation Authority 

powers to cover 

systemically-important 

insurance companies and 

U.S.

branches of foreignowned banks 

Systemically important U.S. insurance holding companies can be resolved using Orderly 

Liquidation Authority (OLA) powers. The resolution of individual legal entity insurance 

company subsidiaries, however, falls to the State-based resolution regime, under which 

States have tools available to 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.

Partially 

implemented.

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 ring-fencing 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.

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INTERNATIONAL MONETARY FUND
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 

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 DoddFrank Act, the FDIC has developed resolution plans for G-SIFIs and has included in each 

plan a resolution strategy and an operational plan that meet the requirements of the 

applicable Key Attributes and relevant annexes thereto.

Furthermore, the establishment of living wills is an essential requirement from the DFA,

where SIFIs and certain other firms are asked to design, and submit for review to the 

Partially 

implemented. 

INTERNATIONAL MONETARY FUND 71

UNITED STATES
FRB and the FDIC, concise plans explaining their orderly resolution under bankruptcy. 

The Fed and the FDIC have issued substantial guidance on resolvability, and the Fed 

and FDIC have reviewed several iterations of plans from U.S. BHCs and foreign banks 

with at least $50 billion of assets, and substantial progress has been made in improving 

the resolvability of firms. For certain firms which were advised in April 2016 that more 

work on their plans was needed the authorities have subsequently determined that all 

of the identified deficiencies (see 2016 Staff Report) in these firms’ plans have been 

remediated. Progress made includes firms’ adherence to the ISDA 2015 Universal 

Resolution Stay Protocol; maintenance of long-term debt issued from the top-tier 

parent holding company to potentially absorb losses; steps to ensure operational 

continuity on both an intra-company and third-party basis; continued legal entity 

rationalization; and enhanced capability to monitor liquidity needs.

Firm-specific cooperation agreements that meet the requirements of the relevant Key 

Attributes and relevant annexes thereto have been executed for all U.S. G-SIBs and for 

one U.S. G-SII.

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. 

Implemented.

72

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INTERNATIONAL MONETARY FUND
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, the CFTC, and the SEC co-hosted the inaugural crisis 

management group (CMGs) meetings for two U.S. systemic CCPs-the Chicago 

Mercantile Exchange and Ice Clear Credit, LLC.

• In October 2016, the FRB, the FDIC, and Office of the Comptroller of the 

Currency, issued an advance notice of proposed rulemaking (ANPR) regarding 

enhanced cyber risk management standards for large and interconnected 

entities under the agencies’ respective supervision and those entities’ service 

providers, including FMIs. In September, 2016, the CFTC issued final 

cybersecurity testing rules for FMIs and markets.

International efforts include the following: • 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 

INTERNATIONAL MONETARY FUND 73

UNITED STATES
results from the SGCCI’s analysis are scheduled to be published in late June of 

2017. 

• The U.S. authorities, as members of CPMI-IOSCO, participated extensively in 

the drafting of the CPMI-IOSCO’s consultative draft on the Framework for 

Supervisory Stress Testing of CCPs, the consultative and final report on CPMIIOSCO’s Resilience of Central Counterparties (CCPs): Further Guidance on the 

PFMI, and the consultative and the final report Recovery of FMIs. The 

consultative versions of the relevant reports were published in August of 2016, 

and the final versions of the same are scheduled to be published in late June of 

2017. 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 have also participated in the FSB work streams on resolution of

CCPs and the continuity of access to FMIs for members in resolution. 

Continued work on, stress-testing interdependencies between financial institutions, 

market infrastructures and financial markets would allow arriving at a holistic view 

regarding financial stability risks. 

Offer Fed accounts to 

designated Financial 

Market Infrastructures 

(FMUs) to reduce 

dependencies on 

commercial bank services

By October 2016, the Federal Reserve Bank of Chicago authorized three U.S. clearing 

houses, run by CME Group and Intercontinental Exchange, and the Options Clearing 

Corporation, to open accounts at the central bank. The measure has been possible as 

clearing houses have been designated as systemically important utilities. 

Implemented. 

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INTERNATIONAL MONETARY FUND
Housing finance

29 Reinvigorate the 

momentum for 

comprehensive housing 

market reform

Housing finance and the U.S. housing market have not been reformed 

comprehensively. 

To date, no legislative or executive action has been taken to reduce substantially the 

footprint of Government Sponsored Entities (GSEs). However, as conservator, FHFA has 

required market-based credit risk transfers from the GSEs to the private sector. Also, 

since 2015, the GSEs have been directed by their conservator, the Federal Housing 

Finance Agency (FHFA), 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 the Housing Trust Fund. 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 GSE’s. 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 has been declining by 

$600 million per year and is scheduled to decline to $0 on January 1, 2018. That 

declining capital retention amount is expected to spur momentum for housing finance 

reform.

The “Qualified Mortgage” (QM) rule (September 21, 2015) will stimulate the housing 

market further, as it provides smaller banks with protection against lawsuits under the 

Ability-to-repay regulation. This could in fact mean a competitive advantage for the 

smaller banks, as well as broader extension of housing credit in general. Perhaps this 

advantage can compensate for their low economies of scale in the high fixed-cost 

mortgage business. Large banks, on the other hand, continue to tighten standards and 

Not 

implemented.

INTERNATIONAL MONETARY FUND 75

UNITED STATES
reduce mortgage exposure, resulting in an increase in nonbanks’ market share (see list 

of risks further below). 

Policymakers have been evaluating and developing a potential comprehensive overhaul 

of the mortgage finance system over eight 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 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. The Senate Banking Committee is currently working on 

comprehensive housing finance reform and has started a series of hearings and 

meetings. In addition, 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”). 

In 2017, the House passed the Financial Choice Act legislation, which has emphasized 

providing regulatory relief for small banks and credit unions and replacing the Dodd-

Frank Act.

UNITED STATES

76 INTERNATIONAL MONETARY FUND
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INTERNATIONAL MONETARY FUND 77

Annex IV. Response to Past Policy Advice

1. Fiscal policy. Public finances remain on an unsustainable path. Over the last few years, 

staff has emphasized the importance of fixing long standing fiscal problems and normalize the 

budget process. The Bipartisan Budget Acts of 2013 and 2015 were welcome steps but these 

agreements did not address the sustainability of public finances over the medium term. Staff has 

advocated adopting a medium-term fiscal consolidation plan to restore long-run fiscal sustainability, 

stressing that early action is needed to slow entitlement spending. Anchored by such a plan, staff 

called for expanding the near-term budget envelope through specific measures—including frontloaded infrastructure spending, a better tax system, active labor market policies, and improving 

educational spending, with these measures funded by offsetting savings in future years. As part of 

the Bipartisan Budget Act and Protecting Americans from Tax Hikes Act, the authorities did expand 

the near-term deficit and made permanent various tax measures (including improvements to the 

EITC, the research and experimentation tax credit, and child tax credit advocated by staff). 

2. Financial policies. Based on the 2010 and 2015 FSAPs, staff has recommended multiple

steps to tackle financial sector risks, particularly those related to activities in nonbank intermediaries. 

Substantial progress has been made on the national and global financial reform agenda over the 

last few years, and many of the policy suggestions have been implemented. These include enhanced 

capital and liquidity buffers, strengthened underwriting standards in the housing sector, greater 

transparency to mitigate counterparty risks, as well as progress in collecting more comprehensive 

information to assess risks. Still, several reforms emphasized by staff remain to be completed, such 

as addressing remaining vulnerabilities of the money market funds and the tri-party repo market, 

reducing data blind-spots, better risk management and stress testing of asset managers, enhancing 

the effectiveness of the FSOC, simplifying the institutional structure for financial oversight, and 

increasing the resilience of the insurance sector. 

3. Structural policies. Staff has recommended structural measures to counter the slowdown 

in potential growth and high poverty rates, including further expanding the EITC, increasing the 

minimum wage, investing in infrastructure and education, improving the tax system, using active 

labor market policies, and implementing a broad, skills-based approach to immigration reform. 

Some states and localities have increased minimum wages and mandated paid family leave. Building 

political consensus on a reform of the tax system in the direction envisaged by staff (a less complex 

system with a broader tax base and lower rates) is still very uncertain. Little progress has been made 

to increase public investment in infrastructure. Support for immigration reform is elusive and there is 

no plan to raise the gas tax, introduce a VAT or a carbon tax, or to reorient the education system. 

4. Housing finance. Staff has stressed policy measures to encourage greater availability of 

mortgage credit, while clarifying the future role of government in housing finance. Administrative 

measures have been taken to lessen regulatory uncertainties and to transfer risks from the agencies 

to private investors through market transactions but more could be done in this direction without 

legislation (see 2015 Selected Issues Paper). Legislative proposals to more fundamentally reshape 

housing finance have made little headway.
UNITED STATES

STAFF REPORT FOR THE 2017 ARTICLE IV CONSULTATION—

INFORMATIONAL ANNEX

Prepared By The Western Hemisphere Department (in consultation with 

other departments)

FUND RELATIONS _______________________________________________________________________ 2

STATISTICAL ISSUES ____________________________________________________________________ 4

CONTENTS

July 6, 2017
THE UNITED STATES

2 INTERNATIONAL MONETARY FUND

FUND RELATIONS

(As of May 31, 2017)

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) 75,258.50 90.68

Reserve Tranche Position 7,771.92 9.36

Lending to the Fund

New Arrangements to Borrow 5,894.59

SDR Department: SDR Million

Percent of 

Allocation

Net cumulative allocation 35,315.68 100.00

Holdings 36,380.76 103.02

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

2017 2018 2019 2020 2021

Principal

Charges/Interest 1.05 1.05 1.05 1.05

Total 1.05 1.05 1.05 1.05

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 June 3, 2016.
THE UNITED STATES

INTERNATIONAL MONETARY FUND 3

Article IV Consultation. The 2017 Article IV consultation was concluded on July 24, 2017 and the 

Staff Report was published as IMF Country Report No. [17/xxx]. A fiscal Report of Observance of 

Standards and Codes was completed in the context of the 2003 consultation. 

The 2017 Article IV discussions took place May 15–June 16, 2017. Concluding meetings with 

Chair Yellen of the Board of Governors of the Federal Reserve System, and Treasury Secretary 

Mnuchin occurred on June 20. 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 27, 2017. The team comprised Nigel Chalk (head), 

Yasser Abdih, Ali Alichi, Stephan Danninger, Emanuel Kopp, Andrea Pescatori, Damien Puy (all WHD), 

Celine Rochon, Sandra Lizarazo and Elizabeth Heuvelen (SPR), Thornton Matheson and Adrian 

Peralta (FAD). Mr. Sunil Sabharwal (Executive Director), Mr. Mark Sobel (Senior Advisor), and 

Ms. Mary Svenstrup (Advisor) attended some of the meetings. Outreach included discussions with 

Congressional staff, U.S. Chamber of Commerce, AFL-CIO, private sector representatives, and think 

tanks. Unless an objection from the authorities of the United States is received prior to the 

conclusion of the Board’s consideration, the document will be published.
THE 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 28, 2017)

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

2017 M4 May 26 M M M

Reserve/base money June 22 June 22 W W W

Broad money June 22 June 22 W W W

Central bank balance sheet June 22 June 22 W W W

Interest rates3 Same day Same day D D D

Consumer price index 2017 M5 June 14 M M M

Revenue, expenditure, balance and 

composition of financing4—general 

government5

2017 Q1 May 30 Q Q Q

Revenue, expenditure, balance and 

composition of financing4—central 

government

2017 M5 June 12 M M M

Stocks of central government and central 

government-guaranteed debt

2017 M5 June 7 M M M

External current account balance 2017 Q1 June 20 Q Q Q

Exports and imports of goods and 

services

2017 M4 June 2 M M M

GDP/GNP (2

nd

release) 2017 Q1 May 26 Q M M

Gross External Debt 2016 Q4 March 31 Q Q Q

International Investment Position6 2017 Q1 June 28 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.