© 2019 International Monetary Fund

IMF Country Report No. 19/174

UNITED STATES

2019 ARTICLE IV CONSULTATION—PRESS RELEASE; 

STAFF REPORT; AND STATEMENT BY THE EXECUTIVE 

DIRECTOR FOR THE UNITED STATES

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

with members, usually every year. In the context of the 2018 Article IV consultation with 

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

package:

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

June 21, 2019 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 June 21, 2019, following discussions that ended on May 28, 2019,

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

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

completed on June 6, 2019.

 An Informational Annex prepared by the IMF staff.

 A Statement by the Staff Representative on the United States.

 A Statement by the Executive Director for the United States.

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

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

other documents.

Copies of this report are available to the public from

International Monetary Fund  Publication Services

PO Box 92780  Washington, D.C. 20090

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

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Price: $18.00 per printed copy

International Monetary Fund

Washington, D.C.

June 2019
Press Release No. 19/234

FOR IMMEDIATE RELEASE

June 24, 2019

IMF Executive Board Concludes Article IV Consultation with the United States

On June 21, 2019, the Executive Board of the International Monetary Fund (IMF) concluded the 

Article IV consultation with the United States.

1

The U.S. economy is in the longest expansion in recorded history. Unemployment is at levels not 

seen since the late 1960s, and economic activity is growing above potential, aided by a fiscal 

stimulus and supportive financial conditions. Real wages are rising, including for those at the 

lower end of the income distribution, and productivity growth appears to be recovering. Against 

this backdrop, inflationary pressures remain remarkably subdued.

Despite these positive macroeconomic outcomes, the benefits from this decade-long expansion 

have not been shared as widely as they could. Average life expectancy is falling, income and 

wealth polarization have increased, poverty has fallen but remains higher than in other advanced 

economies, and social mobility has steadily eroded.

In addition, a number of medium-term risks are growing. The financial system appears healthy 

but vulnerabilities in leveraged corporates and, potentially, in the nonbank system are elevated 

by historical standards. An abrupt reversal of the recent supportive financial market conditions or 

a deepening of ongoing trade disputes represent material risks to the U.S. economy, with 

concomitant negative outward spillovers. The U.S. public debt-to-GDP ratio is on an 

unsustainable path and is expected to continue rising throughout the medium-term, as aging 

related spending rises.

The consultation focused on the policies needed to address these risks, preserve financial 

stability, support the standard of living for low- and middle-income households, and rebuild 

fiscal space.

 

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

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

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

forms the basis for discussion by the Executive Board.

International Monetary Fund

700 19th Street, NW

Washington, D. C. 20431 USA
Executive Board Assessment2

Executive Directors welcomed the continued robust performance of the U.S. economy, which is 

about to mark its longest expansion in recorded history. They noted the achievements of low 

unemployment, rising real wages, and subdued inflation. Economic prospects remain favorable

and risks were viewed to be broadly balanced. Nevertheless, Directors observed that public debt 

is on an unsustainable path, trade tensions and uncertainties are continuing, and medium-term 

risks to financial stability are rising. Continued vigilance, prudent macroeconomic policies, and 

supply-side reforms would be critical to securing strong, balanced, and inclusive growth, 

generating positive spillovers to the rest of the world. 

Directors called on the authorities to address external imbalances through fiscal adjustment and 

supply-side reforms that enhance productivity and competitiveness. They encouraged the United 

States to work constructively and cooperatively with its trading partners to address distortions in 

the trading system and resolve trade tensions in a manner that promotes a more open, stable, and 

transparent rules-based international trade system.

Directors underscored the need to ensure that the benefits of the strong economy are broadly 

shared. They considered it a priority to address rising income inequality and improve social 

outcomes. To this end, they encouraged initiatives to reform the educational system, healthcare, 

and social programs. Specifically, Directors recommended expanding the Earned Income Tax 

Credit, providing family-friendly benefits, and improving healthcare coverage while tempering 

costs.

Directors stressed that policy adjustments are necessary to lower the fiscal deficit and put public 

debt on a gradual downward path over the medium term. They recommended that the authorities 

consider possible options to better control entitlement spending and raise indirect taxes. They 

considered that these efforts would create fiscal space to expand needed investments in 

infrastructure and human capital. They also saw scope for further improving the budgetary 

process.

Directors welcomed the Federal Reserve’s pause in interest rate adjustments. They agreed that 

any further increases in the federal funds rate should be deferred until there are clearer signs of 

wage or price inflation. In this regard, they appreciated the authorities’ continued adherence to a 

data-dependent approach and clear, forward-looking communication. Directors also welcomed 

the authorities’ readiness to consider refinements to the monetary policy framework following 

the Federal Reserve’s review of its monetary policy strategy, tools, and communication.

 

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 appears healthy, with well-capitalized banks. 

However, risks are building up among leveraged corporations and, possibly, in the nonbank 

sector. An abrupt reversal of supportive financial market conditions could weigh on real activity 

and job creation, with negative outward spillovers. Directors emphasized the importance of 

enhancing the risk-based approach to regulation and supervision, strengthening the oversight of 

nonbanks, and addressing remaining data gaps.

Directors welcomed the authorities’ voluntary participation in the Fund’s enhanced governance 

framework on the supply and facilitation of corruption. They encouraged continued efforts to 

improve entity transparency and beneficial ownership information. 
4

United States: Selected Economic Indicators

(percentage change from previous period, unless otherwise indicated)

2018 2019 2020 2021 2022 2023 2024

National production and income

Real GDP 2.9 2.6 1.9 1.8 1.7 1.6 1.6

Real GDP (q4/q4) 3.0 2.3 1.9 1.7 1.7 1.6 1.6

Net exports 1/ -0.2 0.2 -0.2 -0.2 0.0 0.0 0.0

Total domestic demand 3.0 2.4 2.0 1.9 1.6 1.5 1.5

Private final consumption 2.6 2.3 2.2 1.9 1.8 1.6 1.6

Public consumption expenditure 1.2 0.6 1.0 1.1 0.8 0.7 0.6

Gross fixed domestic investment 4.8 2.7 2.4 2.4 1.5 1.7 1.8

Private fixed investment 5.2 3.1 2.9 2.4 1.6 1.8 2.0

Public fixed investment 2.6 0.6 -0.1 2.0 0.7 1.1 0.1

Change in private inventories 1/ 0.1 0.2 0.0 0.0 0.0 0.0 0.0

Nominal GDP 5.2 4.3 4.0 3.8 3.7 3.6 3.7

Personal saving rate (% of disposable income) 6.8 6.5 6.4 6.3 6.2 6.2 6.2

Private investment rate (% of GDP) 17.8 18.1 18.1 18.2 18.2 18.2 18.3

Unemployment and potential output

Unemployment rate 3.9 3.6 3.5 3.6 3.7 3.8 3.8

Labor force participation rate 62.9 63.0 62.9 62.7 62.5 62.3 62.1

Potential GDP 2.0 2.0 1.9 1.8 1.7 1.7 1.7

Output gap (% of potential GDP) 1.1 1.7 1.7 1.6 1.6 1.5 1.4

Inflation

CPI inflation (q4/q4) 2.2 2.4 2.6 2.3 2.2 2.2 2.2

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

PCE Inflation (q4/q4) 1.9 2.1 2.2 2.0 1.9 1.9 2.0

Core PCE Inflation (q4/q4) 1.9 1.8 2.1 2.1 2.0 2.0 2.0

GDP deflator 2.3 1.6 2.1 2.0 2.0 2.0 2.0

Government finances

Federal balance (% of GDP) 2/ -3.9 -4.2 -4.0 -4.0 -4.3 -4.1 -3.8

Federal debt held by the public (% of GDP) 77.8 78.7 79.6 80.6 82.0 83.3 84.2

General government budget balance (% of GDP) 2/ -5.3 -4.9 -4.6 -4.6 -4.9 -4.5 -4.2

General government gross debt (% of GDP) 106.8 107.9 108.8 109.9 111.3 112.4 113.2

Interest rates (percent; period average)

Fed funds rate 1.8 2.4 2.6 2.9 2.9 2.9 2.8

Three-month Treasury bill rate 2.0 2.4 2.6 2.8 2.8 2.8 2.7

Ten-year government bond rate 2.9 2.7 2.9 3.1 3.2 3.2 3.2

Balance of payments

Current account balance (% of GDP) -2.3 -2.1 -2.5 -2.7 -2.6 -2.5 -2.4

Merchandise trade balance (% of GDP) -4.3 -4.2 -4.5 -4.6 -4.6 -4.6 -4.5

Export volume (NIPA basis, goods) 4.7 3.5 3.1 3.9 4.7 4.3 4.4

Import volume (NIPA basis, goods) 4.8 1.9 4.1 3.9 3.2 3.2 3.1

Net international investment position (% of GDP) -44.4 -44.6 -45.4 -46.4 -47.4 -48.2 -48.9

Saving and investment (% of GDP)

Gross national saving 19.0 19.3 18.7 18.7 18.8 18.9 19.0

General government -3.2 -2.7 -2.5 -2.5 -2.7 -2.4 -2.2

Private 22.2 22.0 21.3 21.2 21.5 21.3 21.3

Personal 5.1 4.9 4.9 4.8 4.8 4.8 4.7

Business 17.1 17.1 16.4 16.4 16.7 16.5 16.5

Gross domestic investment 21.1 21.3 21.3 21.4 21.3 21.4 21.4

Private 17.8 18.1 18.1 18.2 18.2 18.2 18.3

Public 3.3 3.3 3.2 3.2 3.2 3.1 3.1

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

1/ Contribution to real GDP growth, percentage points.

2/ Includes staff's adjustments for one-off items, including costs of financial sector support.

Projections
UNITED STATES

STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION

KEY ISSUES

The U.S. economy is in the longest expansion in recorded history. Unemployment is 

at levels not seen since the late 1960s, real wages are rising, and inflationary pressures 

remain subdued. Economic activity, while still growing above potential, is expected to 

slow to around 2.6 percent this year and 1.9 percent in 2020.

Despite these positive macroeconomic outcomes, the benefits from this decadelong expansion have not been shared as widely as they could. A broader set of social 

indicators shows a troubling picture. Average life expectancy is falling, income and 

wealth polarization have increased, poverty has fallen but remains higher than in other 

advanced economies, social mobility has steadily eroded, and education and health 

outcomes are discouraging.

The financial system appears healthy but medium-term risks to financial stability 

are rising. More accommodative guidance by global central banks has supported a 

broad-based increase in asset prices and a compression in the market pricing of

volatility. At the same time, vulnerabilities in leveraged corporates and, potentially, in the 

nonbank system are elevated by historical standards. There has been little institutional 

response to counter these growing risks. 

An abrupt reversal of the recent supportive financial market conditions represents 

a material downside risk to the U.S., with spillover implications for other 

economies. A sudden tightening of financial conditions could interact with high levels of 

corporate and public debt, creating a feedback loop between financial conditions and 

real activity, with negative implications for financial stability. This would undoubtedly 

have negative outward spillovers for non-U.S. corporates, sovereigns and financial 

institutions, particularly those with significant leverage or rollover needs in U.S. dollars.

The U.S. public debt is on an unsustainable path. Policy adjustments are needed to 

lower the fiscal deficit and to put public debt on a gradual downward path over the 

medium term. There are a range of possible policy options, but any successful package

will likely require steps to address the expected increases in entitlement spending on 

health and social security, to raise indirect taxes, and to institute a federal carbon tax. 

June 6, 2019
UNITED STATES

2 INTERNATIONAL MONETARY FUND

Further increases in the federal funds rate should be deferred until there are greater signs of 

wage or price inflation than are currently evident. Faced with falling inflation, anchored inflation 

expectations, a flat trade-off between inflation and slack, and continued uncertainties around the

global outlook, the balance of risks argues in favor of a pause to further changes in monetary policy. 

Such a pause will give policymakers time to gauge the balance of risks to both inflation and 

employment outcomes and to build a clearer picture of whether further adjustments in the federal 

funds rate are warranted.

Providing greater clarity, and a more holistic picture, of the expected evolution of the 

operating framework for monetary policy would be valuable. Operational changes could involve 

introducing a standing repo facility (to help cap spikes in money market rates); moving away from 

the federal funds rate as the operating target; and returning to a point target for the policy rate 

(rather than the current target range).

For the global economy to function well, it needs to be able to rely on a more open, more 

stable, and more transparent, rules-based international trade system. The U.S. and its trading 

partners should work constructively to better address distortions in the trading system that are 

partly rooted in the system’s inability to adapt to long-term changes in the international 

environment. It is especially important that the trade tensions between the U.S. and China—which 

represent a threat to the global outlook and create important negative spillovers to other 

countries—are quickly resolved through a comprehensive agreement that strengthens the 

international system.

The external position is judged to be moderately weaker than implied by medium-term 

fundamentals and desirable policies. The current account deficit is expected to rise modestly over 

the medium-term, moving it further away from the estimated current account norm. The real 

effective exchange rate remains somewhat overvalued. The combination of gradual fiscal 

consolidation, an improving oil balance, and supply-side reforms are necessary to lower the current 

account deficit (not through tariffs or other policy efforts aimed at reducing bilateral deficits).
UNITED STATES

INTERNATIONAL MONETARY FUND 3

Approved By

Nigel Chalk (WHD) 

and Tam Bayoumi 

(SPR)

Discussions took place in New York (March 5-7) and in Washington 

D.C. (April 29-May 13). Concluding meetings with Chair Powell and 

Secretary Mnuchin were held on May 23 and 28, respectively. The team 

comprised Nigel Chalk (head), Yasser Abdih, Carlos Caceres, Emanuel 

Kopp, Daniel Leigh, Suchanan Tambunlertchai (all WHD), Steve Dawe 

(LEG), Diego Cerdeiro and Elizabeth Van Heuvelen (SPR). Javier Ochoa 

and Peter Williams provided valuable assistance.

CONTENTS

A ROBUST AND CONTINUING EXPANSION ___________________________________________________5

RISING MEDIUM-TERM FINANCIAL STABILITY RISKS _________________________________________9

THE POTENTIAL FOR A RISING EXTERNAL IMBALANCE_____________________________________ 13

TROUBLING SOCIAL OUTCOMES _____________________________________________________________ 16

THE U.S. FISCAL POSITION IS UNSUSTAINABLE ____________________________________________ 25

MONETARY NORMALIZATION—REST STOP OR END OF THE LINE? ________________________ 29

A MORE OPEN, STABLE, AND TRANSPARENT, RULES-BASED INTERNATIONAL SYSTEM 

FOR TRADE AND INVESTMENT _______________________________________________________________ 34

GOVERNANCE AND TRANSPARENCY ________________________________________________________ 36

STAFF APPRAISAL _____________________________________________________________________________ 38

BOXES

1. Macro-Financial Links Between Household Wealth and Consumption _________________________ 8

2. Financial System Oversight Since the 2018 Article IV __________________________________________12

3. Recent Developments in the U.S. Energy Sector _______________________________________________14

4. Outward Spillovers of Trade Tensions _________________________________________________________15

5. The Social and Macroeconomic Toll of Opioid Addiction______________________________________17

6. Social Assistance Programs____________________________________________________________________22

7. The Impact of the Corporate Income Tax Cut _________________________________________________27

8. Salient Risks to Growth and Inflation __________________________________________________________31

9. Hysteresis and the Scope for Continued Monetary Accommodation __________________________32
UNITED STATES

4 INTERNATIONAL MONETARY FUND

FIGURES

1. An Enduring Expansion with Low Inflation______________________________________________________ 5

2. Financial Sector Vulnerabilities ________________________________________________________________11

3. The Nature of Poverty in the United States____________________________________________________18

4. A Decades-Long Rise in Income and Wealth Inequality _______________________________________19

5. A Secular Decline in Socioeconomic Mobility _________________________________________________19

6. Education Indicators___________________________________________________________________________20

TABLES

1. Selected Economic Indicators _________________________________________________________________41

2. Balance of Payments __________________________________________________________________________42

3. Federal and General Government Finances____________________________________________________43

4. Core Financial Soundness Indicators for Deposit Takers_______________________________________44

APPENDICES

I. External Sector Assessment ____________________________________________________________________45

II. Risk Assessment Matrix________________________________________________________________________46

III. Public Debt Sustainability Analysis____________________________________________________________48

IV. External Debt Sustainability Analysis__________________________________________________________55

V. Implementation of FSAP Recommendations __________________________________________________57
UNITED STATES

INTERNATIONAL MONETARY FUND 5

A ROBUST AND CONTINUING EXPANSION

1. In July, the U.S. economy will achieve the longest expansion in recorded U.S. history. 

Since June 2009, the economy has repaired the damage wrought by the financial crisis and 

demonstrated extraordinary resilience, enduring both domestic policy tightening (in 2011-15 there 

was a cumulative 51⁄4 percent of GDP withdrawal of fiscal stimulus) and a range of external shocks. 

Unemployment has been on a downward trend for almost a decade and is now at levels not seen in 

50 years. Over the course of this expansion an average of 2 million jobs per year have, on net, been 

created. Real wages are rising, including notably for those at the lower end of the income 

distribution, and productivity growth appears to be recovering. Against this backdrop, inflationary 

pressures remain remarkably subdued. 

Figure 1. United States: An Enduring Expansion with Low Inflation

GDP growth accelerated in 2018.

Unemployment is low and labor force participation is 

rising.

Real wage growth is rising alongside productivity growth.

Headline and core inflation remains near to, but below, 2 

percent.

-3

-2

-1

0

1

2

3

4

2007 2009 2011 2013 2015 2017

Real GDP Growth (Percent, y/y)

Real GDP growth

Potential GDP growth (CBO)

Source: BEA, Congressional Budget Office

-1

0

1

2

3

2012 2013 2014 2015 2016 2017 2018 2019

Real Wage Growth

(12-month change, percent)

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

Employment cost index Average hourly earnings

Wage growth tracker Output per hour

-1

0

1

2

3

4

2007 2009 2011 2013 2015 2017 2019

PCE Inflation (Percent)

Headline

Core

72

74

76

78

80

82

0

2

4

6

8

10

12

2007 2009 2011 2013 2015 2017 2019

Labor Market Utilization (Percent)

Unemployment rate (LHS)

Prime age employment-to-population 

ratio (RHS)

Source: BLS
UNITED STATES

6 INTERNATIONAL MONETARY FUND

2. Real GDP is expected to grow at an annual rate of 2.6 percent this year, before 

moderating to 1.9 percent in 2020. A fiscal expansion that was put in place in 2018-19—with tax 

reductions and an increase in both defense and nondefense spending—has helped bring annual 

growth to 2.9 percent in 2018. Growth in 2019Q1 exceeded forecasts, reaching 3.1 percent (q/q, 

saar) with strong growth in inventory investment and net exports, as well as supportive financial 

conditions. Consumption and private investment growth are expected to strengthen in subsequent 

quarters, allowing for an increase in the growth forecast for the year as a whole, even as the 

temporary boost from inventories moves into reverse. However, as the effects of this fiscal impulse 

fade over the next few years, growth will gravitate back toward potential (of around 13⁄4 percent). 

The job market is expected to remain strong with robust job creation, steadily rising earnings, and a 

continuing positive response of labor force participation to the tightening labor market. Confidence 

about future job prospects and improving household balance sheets are expected to support 

household consumption (Box 1). Risks are viewed to be broadly balanced around this growth

forecast. A deepening of ongoing trade disputes or an abrupt reversal of the recent supportive

financial market conditions represent material risks to the U.S. economy (with concomitant negative 

outward spillovers). These risks are interconnected since trade policy uncertainty represents an 

important determinant of domestic and global financial conditions as well as of business investment 

decisions. On the other hand, a Congressional agreement to raise budget spending caps or a 

positive resolution of trade tensions could provide a supportive tailwind to activity.

Economic Forecasts (Percent)

Sources: CBO projections are from the Budget and Economic Outlook January 2019; FOMC 

projections are from the March 2019 Summary of Economic Projections; SPF is the Federal 

Reserve Bank of Philadelphia’s Survey of Professional Forecasts, April 2019; OMB is the 

Office of Management and Budget for the President’s FY2020 Budget.

1/ Long-run refers to 2028.

2018 2019 2020 2021 2022

Longer 

Run

IMF 2.6 1.9 1.8 1.7 1.7

CBO 2.7 1.9 1.6 1.6 1.8

OMB 3.2 3.1 3.0 3.0 2.8

SPF 2.6 2.0 1.9 2.3 2.0

IMF 2.3 1.9 1.7 1.7 1.7

CBO 2.3 1.7 1.6 1.6 1.8

FOMC 2.1 1.9 1.8 ... 1.9

IMF 3.5 3.5 3.7 3.7 4.3

CBO 3.5 3.9 4.4 4.8 4.8

SPF (annual avg) 3.7 3.6 3.7 3.9 4.3

FOMC 3.7 3.8 3.9 ... 4.5

IMF 1.8 2.1 2.1 2.0 2.0

CBO 2.2 2.2 2.1 2.1 2.0

SPF 1.7 2.0 1.9 ... ...

FOMC 2.0 2.0 2.0 ... ...

IMF 2.6 2.9 2.9 2.9 2.8

FOMC 2.4 2.6 2.6 ... 2.8

IMF -4.2 -4.0 -4.0 -4.3 -4.7

CBO -4.2 -4.0 -4.2 -4.7 -4.7

OMB -5.1 -4.9 -4.5 -4.2 -1.5

Projections

Real GDP Growth (annual average)

Real GDP Growth (Q4/Q4)

3.0

2.9

3.8

Unemployment Rate (eop)

Core PCE Inflation (Q4/Q4)

1.9

Sources: CBO projections are from the Budget and Economic Outlook 

January 2019; FOMC projections are from the March 2019 Summary of 

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

Survey of Professional Forecasts, April 2019; OMB is the Office of 

Management and Budget for the President's Budget March 2019

1/ Long-run refers to 2028.

Budget balance (federal government, percent of GDP) 1/

Federal Funds Rate (eop)

2.4

-3.9
UNITED STATES

INTERNATIONAL MONETARY FUND 7

Authorities’ Views

3. The administration expects growth to remain at or above 3 percent over the mediumterm. The economy is expected to benefit from a lower tax burden (that incentivizes investments in 

human and physical capital), and a reduction in regulatory restrictions (particularly those that 

hamper business and create barriers to entry such as occupational licensing requirements), which 

would encourage foreign profit repatriation, and remove disadvantages for U.S. corporations 

operating worldwide, and an investment of up to US$2 trillion over the next decade in new 

infrastructure investments. In addition, the TCJA regulations are still being implemented, which 

means not all capital investment that results from these changes has been made. The 

unemployment rate is expected to remain at historically low levels for the next few years, rising 

gradually to around 4 percent by 2023. The potential gains from ongoing investments in 

apprenticeship and other work-based learning programs could prove particularly valuable as a way 

to increase productivity, raise wages, and support medium-term growth. Such supply-side incentives 

are expected to strengthen labor force participation, increase capital formation, and raise 

productivity. As such, the 3 percent growth rate could be achieved with inflation remaining 

contained at around 2 percent.
UNITED STATES

8 INTERNATIONAL MONETARY FUND

Box 1. Macro-Financial Links Between Household Wealth and Consumption 1

Households consumption responds relatively little to changes in financial wealth but rising housing prices do 

provide support to household consumption, particularly for those at the lower end of the income distribution.

Drawing on an econometric model using household-level survey data, the marginal propensity of 

households to consume (MPC) out of housing, equity, and other forms of net wealth was estimated (in a 

panel for 1999-2017 across a sample of about 8,000 households with time fixed effects and controlling for 

various household-specific characteristics). 

The results indicate that households raise consumption by 

around 4-5 cents per year for each US$1 dollar increase in 

their housing wealth (net of mortgage and home equity loans).

The consumption response to changes in other forms of 

wealth—including holdings of financial assets—appears to be 

not statistically different from zero. Drawing on the response 

to changes in housing wealth across different income groups, 

the estimates would suggest that a persistent, broad-based 10 

percent change in house prices would change aggregate 

consumption by around 1–1.4 percent, broadly in line with 

other estimates in the literature that use macro time series.

The propensity to consume out of housing 

wealth is closely linked to household 

characteristics. For example, working age 

individuals have a larger consumption 

response to wealth gains than do older 

cohorts. As such, the ongoing aging of the 

U.S. population would suggest the 

propensity to consume out of housing 

wealth at the aggregate level is likely to fall 

in the coming years. 

Income distribution also plays an important 

role. Low-income households who own their 

home appear to respond most to increases in housing 

wealth (suggesting that poorer households are more likely 

to be cash constrained and that constraint is eased if they 

can extract some part of the increase in housing wealth to 

finance consumption). In addition, those with an 

outstanding stock of credit increase consumption by more 

in response to rising home equity than those without credit 

(and this incremental effect is larger for those with lower 

incomes).

1 See C. Caceres, “Analyzing the Effects of Financial and Housing Wealth on Consumption Using Micro Data”, IMF 

Working Paper 19/115, 2019.

-0.02

0.00

0.02

0.04

0.06

0.08

199920012003

2005200720092011201320152017

MPCs for Selected Types of Wealth

Net home wealth

Stock holdings

Total net wealth

0.00

0.01

0.02

0.03

0.04

0.05

0.06

0.07

0.08

0.09

0.10

0.11

Basic model

yes no < 25

25-4445-5455-64

> 65

working

not work.

yes no married

not marr.

Home

ownership

Age group Employment

status

College

eduction

Marital status

MPC: Net Housing Wealth

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

< 10*

10-2020-4040-6060-8080-90

 > 90*

Income groups

MPCs: Housing Wealth

Net home equity

Gross home assets

Home-related debt
UNITED STATES

INTERNATIONAL MONETARY FUND 9

RISING MEDIUM-TERM FINANCIAL STABILITY RISKS

4. The financial system appears healthy but medium-term risks to financial stability are 

rising. U.S. banks are well capitalized and asset quality appears to be generally good. Credit remains 

available to both households and corporations and the cost of borrowing is relatively low. However, 

corporate leverage is historically high, the share of commercial loans that are non-performing is

creeping up, and underwriting standards are 

weakening. In addition, asset valuations are rich,

risk premia, term premia, and the market pricing of 

volatility are at low levels, and, as a result, financial 

conditions are extremely loose. This broad 

availability of relatively cheap financing is

supporting near-term activity but adding to 

medium-term probabilities of low growth (as seen 

in changes in medium-term growth-at-risk 

estimates since the last Article IV). However, an 

abrupt reversal of this accommodative 

environment, interacting with leveraged corporate 

balance sheets, could create a significant downdraft 

to activity, investment, and job creation. 

5. Accommodative U.S. financial conditions are supportive of global growth but could 

create negative outward spillovers in the event of an abrupt reversal in asset prices. Such a 

shift could expose liquidity and solvency vulnerabilities in other countries which would be 

particularly problematic for sovereigns and corporates that have significant balance sheet exposures 

in U.S. dollars or for those countries that rely on inward capital flows to finance their current account 

deficits.

6. It is of concern that there has been little institutional response to counter the growing 

risks to medium-term financial stability. Instead, the recent tailoring of financial regulation has 

led to a steady easing of regulatory constraints at a late stage in the cycle (Box 2). Given the evident 

build-up of leverage in the system, most notably in the corporate sector, but also with rising 

sovereign debt and a significant stock of full-recourse student loans, it is more urgent than ever to 

ensure that any further changes to the financial oversight regime not only preserve, but enhance, 

the current risk-based approach to regulation, supervision and resolution. Risk-based capital and 

liquidity standards, combined with strong supervision, need to be the central tools in incentivizing 

financial institutions to manage well the risks they undertake, including through a robust 

Comprehensive Capital Analysis and Review (CCAR) process. The FSOC should continue its efforts to 

respond to emerging threats to financial stability and, in this work, there is scope to strengthen and 

more fully resource the Office of Financial Research. Also, the U.S. should maintain its engagement 

in developing the international financial regulatory architecture while adhering to agreed 

international standards. 

0

5

10

15

20

25

30

35

40

2018Q2 2019Q1 2018Q2 2019Q1

Growth < 0% Growth < 1%

Medium-term Risks

(Growth probabilities)

Note: Growth-at-Risk estimates. Medium-term refers to 

three years ahead.

Source: IMF staff estimates
UNITED STATES

10 INTERNATIONAL MONETARY FUND

7. There is a need to strengthen the oversight of nonbanks and to address continuing 

data blind spots that impede a full understanding of the nature of financial system risks, 

interlinkages, and interconnections. As has been highlighted in previous consultations, there are 

potential weaknesses in oversight arising from the absence of harmonized national standards or 

consolidated supervision for insurance companies. Recent proposals to limit the engagement of 

federal authorities in international supervisory fora could prove cumbersome for the insurance 

standard setting process and the development of the global capital standard. Progress has been 

made in money market reform but vulnerabilities—in repo markets and for money market funds—

remain. There is also a need to introduce a comprehensive liquidity risk management framework for 

asset managers (that includes liquidity risk stress tests). Little progress has been made in reforming 

the housing finance system or the government sponsored enterprises. Finally, impediments to data 

sharing among regulatory agencies remain and there are continuing data blind spots, particularly 

related to the activities of nonbanks, that preclude a full understanding of the nature of financial 

system risks, interlinkages, and interconnections. These topics will be a focus of the ongoing 

Financial Sector Assessment Program (FSAP) for the United States.

Authorities’ Views

8. Overall, the risks to financial stability were assessed to be moderate. Nonetheless, the 

prolonged credit expansion has created potential vulnerabilities, particularly visible in the increase in 

nonfinancial corporate leverage. In part these higher corporate debt levels are mitigated by strong 

interest coverage ratios and healthy liquidity positions. Nonetheless, if there were a sudden or 

prolonged deterioration in business earnings there would likely be an increase in default rates with 

attendant downward pressures in the price of risk assets. Other salient vulnerabilities that were 

highlighted include the potential for a destabilizing cybersecurity event, the increased concentration 

of activities and exposures in central counterparties and in the tri-party repo market, and the 

ongoing transition away from LIBOR as a reference rate for a range of financial contracts. However, 

work was ongoing in all of these areas to better understand interlinkages, manage vulnerabilities,

and improve risk management practices within financial institutions. U.S. regulators have also taken 

steps to improve the effectiveness and efficiency of financial regulations including by tailoring 

prudential standards for bank holding companies based on size and complexity, better integrating 

the CCAR process with the rules on regulatory capital buffers, and proposing simplification of the 

Volcker Rule requirements. There was agreement that it was critical to continue to make progress in 

addressing data gaps and U.S. regulators have been working with the Financial Stability Board, the 

Bank for International Settlements, International Organization of Securities Commissions and other 

international standard-setters to tackle these issues.
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INTERNATIONAL MONETARY FUND 11

Figure 2. United States: Financial Sector Vulnerabilities

Risk assets rebounded strongly in the first quarter of 2019 

resulting in a return to very expansionary financial 

conditions.

There has been a broad-based rally across all asset classes 

leaving valuations close to historic highs.

House prices are rising but broadly in line with disposable 

incomes. 

While debt levels are high, much of this debt (for both 

households and firms) is at low interest rates and long 

duration, implying less burdensome debt service.

The leveraged loan market continues to expand. The oil sector has been prone to bouts of stress but has 

weathered recent commodity price volatility well. 

2

4

6

8

10

800

1400

2000

2600

3200

2010 2013 2016 2019

Stock Market Valuations

S&P 500 (LHS, 1941-43=10)

Equity Risk Premium (RHS percent)

Note: Equity risk premium is defined as earnings yield - the yield 

on ten year TIPS. Source: Bloomberg

2

4

6

8

10

0

1

2

3

4

2014 2015 2016 2017 2018 2019

Corporate Bond Spreads (percent)

Investment Grade (LHS)

High-yield (RHS)

Source: ICE/BAML, Haver Analytics

50

60

70

80

90

100

110

120

19982000200220042006200820102012201420162018

Housing Affordability (Jan 2007 = 100)

Real House Prices

Price-to-income Ratio

Source: BEA, BLS, and Case-Shiller

0

500

1,000

1,500

2000 2003 2006 2009 2012 2015 2018

Leveraged Loan Growth

Volume (USD bn, LHS)

Source: Bloomberg

30

35

40

45

50

10

14

18

2000 2003 2006 2009 2012 2015 2018

Debt Service Costs (percent)

Household Debt Service Ratio 

(percent of dispoable income, LHS)

Corporate Debt Service Ratio (RHS)

Source: Federal Reserve and BIS

-20

30

80

130

180

0

2

4

6

8

10

2013 2014 2015 2016 2017 2018 2019

Energy Sector Indices Performance

High Yield

Investment Grade

Energy Select Sector SPDR Fund (rhs)

(Percent, CDS spread) (U.S. dollars per share)

Source: Bloomberg, Markit, author's estimates
UNITED STATES

12 INTERNATIONAL MONETARY FUND

Box 2. Financial System Oversight Since the 2018 Article IV

Since the passage of the May 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act

(EGRRCP), U.S. financial regulators have instituted several regulatory changes and have put forward other

proposals for public comment (both to implement the EGRRCP and as part of the broader effort to tailor 

financial regulations):

Changes in Oversight

• Prudential standards for banks between US$50-100 billion in assets have been lowered, including for 

liquidity, capital, risk management requirements, and resolution plans. 

• Bank holding companies with less than US$3 billion in assets will be allowed to incur more debt and are 

now exempt from minimum capital requirements at the consolidated level. However, depository 

institutions that are part of the holding company will still be subject to minimum capital requirements.

• The qualitative assessment in the Comprehensive Capital Analysis and Review process will be phased 

out. 

Proposed Changes in Oversight

• The Federal Reserve has proposed reducing the enhanced supplementary leverage ratio for GSIBs from 

6 percent of assets to 3 percent of assets plus a buffer of one-half of the entity’s risk-based capital 

surcharge.

• The Financial Stability Oversight Council has proposed replacing the size-based approach to designation 

of nonbank financial companies with an activities-based approach, with various changes to the process 

and criteria for making designation decisions.

• The Federal Reserve has proposed sorting domestic banks into four categories based on the size of 

assets, cross-jurisdictional activity, short-term wholesale funding, nonbank assets, and off-balance sheet 

exposure. 

• Category I and II banks (GSIBs and non-GSIBs with more than US$750 billion in assets or with sizable 

cross-border activity) would see little change to their regulatory requirements. 

• Category III banks (with US$250-750 billion in assets) would face less restrictive capital and liquidity 

standards and would conduct company-run stress tests every other year (while remaining subject to 

annual supervisory stress tests). 

• Category IV banks (with US$100-250 billion in assets) would be relieved from the Liquidity Coverage 

Ratio (LCR) and Net Stable Funding Ratio (NSFR) requirements as well as company-run stress tests. 

This category of banks would be subject to less frequent supervisory stress tests. 

• The Federal Reserve is considering a framework for sorting foreign banks into different categories 

(similar to that for domestic banks) with requirements calibrated to the risks these foreign institutions 

pose to the U.S. financial system.
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INTERNATIONAL MONETARY FUND 13

THE POTENTIAL FOR A RISING EXTERNAL IMBALANCE

9. The current account deficit has been broadly stable over the past several years, but 

external imbalances are expected to grow over the medium term. Despite a very expansionary 

fiscal policy and output rising above potential, the current account deficit has been remarkably flat 

(remaining at 21⁄4 percent of GDP in 2018). Part of the compression of the current account has come 

from a shift in energy production (Box 3) that has 

offset a worsening in the non-energy balance. In 

addition, relatively low returns on U.S. bonds 

combined with buoyant global equity markets have 

led to an improvement in the net income flows in 

the current account. The trade and current account 

deficit are, however, still expected to rise over the 

next few years as the economy grows faster than 

potential and the positive output gap widens. The 

2018 external position is judged to be moderately 

weaker than implied by medium-term 

fundamentals and desirable policies and the real 

exchange rate remains somewhat overvalued (see 

Annex I). The persistent current account deficits are expected to lead to the net international 

investment position becoming increasingly negative, approaching -50 percent of GDP by 2025. 

10. Addressing these external imbalances will need to involve fiscal adjustment, a

continued improvement in the oil balance, and supply side reforms that improve productivity 

and competitiveness. Efforts to contain bilateral trade deficits through tariff measures will be 

unable to impact the U.S. current account and will be damaging to both U.S. and global 

macroeconomic outturns (see April 2019 World Economic Outlook and Box 4). 

Authorities’ Views

11. There was agreement that the recent rise in the fiscal deficit was putting upward 

pressure on the U.S. current account deficit. However, the administration’s policies to take 

advantage of the U.S. abundant energy resources were expected to continue putting a structural 

downward pressure on the current account deficit (the U.S. is already a net exporter of natural gas 

and is expected to become a net exporter of energy by 2020). Officials highlighted addressing 

excess savings or low investment in other systemic economies would more productively address 

global current account imbalances while strengthening global growth. Officials agreed that trade 

restrictions, standing alone, would not address the U.S. external imbalance. However, insofar as 

these restrictions were able to create the conditions whereby other countries address their 

distortions and unfair trade practices, they would eventually lead to more balanced trade and a 

reduction in global imbalances. The worsening of the U.S. net international investment position was 

not viewed as a significant concern, given the dollar’s status as a reserve currency. 

-8

-4

0

4

8

-8

-4

0

4

8

2000 2003 2006 2009 2012 2015 2018

Current Account Balance

(Percent of GDP)

Services Non-oil goods

Oil Primary Income

Secondary Income CAB

Source: BEA
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14 INTERNATIONAL MONETARY FUND

Box 3. Recent Developments in the U.S. Energy Sector1

The U.S. has now become the world’s largest producer of oil and natural gas and is expected to become a net 

exporter of petroleum products by 2021.

The past decade has seen a rapid transformation in the 

U.S. energy industry driven by shale oil and gas 

production. The initial widespread adoption of 

hydraulic fracturing was associated with a surge in oil 

and gas capital expenditures causing the U.S. share of 

global oil and natural gas liquids production to rise 

(from 11 percent in 2010 to 20 percent in 2018). The 

sector’s rapid expansion in upstream production, 

downstream demand for inputs, and product 

transportation have been a boon to manufacturing and

employment in many parts of the country. 

Since the oil price shock of 2014-15, the sector has 

become leaner, more capital efficient, and is now, for 

the most part, cashflow positive. The sector appeared 

to weather well the 2018 price decline and subsequent 

volatility. As technology improves and drilling becomes

more targeted, new wells are achieving substantially 

higher output. The short production cycles of shale 

wells (they can often be drilled and begin producing in 

less than 45 days) as well as the ability to leave wells

uncompleted until prices become more favorable,

implies a high elasticity of both production and 

investment to changes in world prices. This means that 

the U.S. oil and gas sector can serve as a global shock 

absorber that can dampen price volatility, creating 

positive outward spillovers for the global economy.

Assuming WTI prices remain above US$60 per barrel, industry experts forecast U.S. oil production to reach 

16 million barrels per day by 2030 (i.e. around 2 million barrels per day above the EIA’s current baseline 

scenario). The Permian Basin in West Texas and New Mexico is expected to drive the bulk of production 

increases given the field’s proximity to refining capacity and ports on the Gulf Coast. By 2020, the U.S. will 

become a net energy exporter which will be an important force in reducing the U.S. current account deficit. 

Even now, as a net energy importer, it is empirically ambiguous whether a change in oil prices has a positive 

or negative impact on U.S. activity (given the countervailing effects of oil prices on consumption and 

investment behavior).

1Authored by Peter Williams.

4

8

12

16

0

200

400

600

2000 2005 2010 2015 2020 2025 2030

Thousands

Note: 2019 values are estimates by the sources

Source: Bloomberg, EIA. 

Oil and Gas CAPEX (bn dollars, LHS)

Oil Production 

(mn barrels per day, RHS)

0

40

80

120

160

0

600

1,200

1,800

2010 2012 2014 2016 2018

Sources: Baker Hughes, Haver Analytics

U.S. Oil rigs (LHS)

WTI Oil Price (dollars per barrel, RHS)
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INTERNATIONAL MONETARY FUND 15

Box 4. Outward Spillovers of Trade Tensions1

Estimates from a detailed sectoral model show that ongoing trade tensions with China are likely to create an important drag 

on specific U.S. industries and states. These economic losses could potentially be further amplified by either short-run 

adjustment costs, by long-run effects on labor and capital formation, or through heightened policy uncertainty. Outward 

spillovers from higher tariffs on Chinese imports can be large, depending on the industrial structure of trading partners.

A multi-sector trade model calibrated to 165 countries is used to examine the effects of changes to the U.S. trading 

relationships with China. The model captures medium-term sectoral and global value chain disruptions (although it does 

not capture medium-term effects on the stock of capital and size of the labor force). 

A U.S.-China trade deal could represent an important step forward for the global system if it is able to multilaterally

eliminate some of the existing trade restrictions and trade-distorting policies (e.g. non-tariff barriers or disincentives to 

investment like weak intellectual property protection or required transfers of technology). However, a managed trade deal 

that focuses on reducing the bilateral trade deficit could create new structural rigidities. To compare sectoral and macro 

outcomes, three scenarios are analyzed: 

• An intensification of trade tensions with China that increases bilateral tariffs by 25 percentage points. 

• A trade deal where China puts in place administrative restraints on its exports to the U.S.

• A trade deal where China agrees to larger purchases of U.S. goods (mainly primary sector products and aircrafts). 

Higher tariffs and export restraints both reduce U.S. and China’s

GDP, while an agreement for China to purchase more U.S. goods 

is supportive of U.S. activity but reduces Chinese income. The 

negative effects arise because protected sectors in each country 

are unable to expand sufficiently to offset the negative impact 

that tariff distortions have on other parts of the economy. Broader 

macroeconomic effects on investment and labor supply, that are 

not considered here, would likely amplify these effects (for 

example, as described in the April 2019 WEO, a broad-based 25

percent tariff lowers GDP by around 0.5 percent for both 

countries).

The three scenarios are a headwind to the Chinese economy but 

countries with large direct trade exposure to the U.S. (e.g. Mexico 

and Canada) could gain from trade diversion effects (although 

they may lose from other effects not considered 

here). For some, there could be sizable spillover 

effects as the shifts in U.S.-China trade feed through 

global supply chains.

Even though aggregate effects are relatively small, 

the sectoral and regional effects in the U.S. can be 

large. The regional implications are closely linked to 

the sectoral specialization of each state. For example, 

those with a large agriculture or energy presence 

benefit from an increase in China purchases of U.S. 

goods but most other states face a modest loss. 

The distributional effects can vary greatly across 

different trade scenarios. For example, higher tariffs 

between the U.S. and China would 

disproportionately be borne by poorer states 

(creating a consequent increase in overall poverty). By contrast, increased Chinese purchases of U.S. goods would benefit 

those states with lower average incomes and a higher proportion of lower earners. 

1 See C. Caceres, D. Cerdeiro, and R. Mano, “Trade Wars and Trade Deals: Estimated Effects Using a Multi-Sector Model”, IMF Working 

Paper, 2019. Broadly similar effects are found in Chapter 4, April 2019 World Economic Outlook.

Changes in Real GDP

[-0.5, -0.1]% 

[-0.1, 0.1]%

[0.1, 0.5]%

>=0.5%

Impact of Trade Deal that Entails Larger Purchases of U.S. Goods by China (value added; percent change)

-0.6

-0.5

-0.4

-0.3

-0.2

-0.1

0.0

0.1

0.2

0.3

USA CAN CHN DEU JPN MEX

Real GDP Impact on U.S. and Selected Trading Partners from 

Sectoral Trade Model (percent change)

Trade war with China

Trade deal: restraint on China's exports to U.S.

Trade deal: China purchases of U.S. goods
UNITED STATES

16 INTERNATIONAL MONETARY FUND

TROUBLING SOCIAL OUTCOMES

12. Real per capita GDP is at an all-time high, almost 10 percent above the pre-financial 

crisis peak, but metrics of welfare have not matched those income gains. Most notably, after 

rising steadily (from 70 years in 1960 to almost 79 years in 2017) Americans’ life expectancy has 

declined over the past three years and is well below that of other G7 countries (despite having been 

near the G7 median in the 1980s). Cancer and heart disease remain the leading causes of death even 

though the mortality rate for both diseases has been declining. Rising suicide rates and, particularly, 

deaths linked to drug overdose (Box 5) have been 

important contributors to diminished longevity. 

The rising cost of healthcare—which, over the 

past 20 years, has increased by 1.4 percent per 

year faster than median incomes and leaves the 

U.S. with the highest per capita healthcare costs 

among the OECD countries—has reduced access 

and been a headwind to improving health and 

longevity outcomes. As one indication of the 

implications of the rising cost burden, according 

to a recent Gallup survey, 29 percent of 

Americans have decided not to seek medical 

treatment because of high costs. 

13. On the positive side, it is important to recognize that less than 9 percent of the 

population are now without health insurance, half the rate of uninsured relative to that of a 

decade ago. This increase in coverage has been a result of the Affordable Care Act (ACA) raising

income limits for Medicaid, a greater share of the population becoming eligible for Medicare (as the 

population ages), greater use of non-employer provided insurance (largely purchased through ACA 

health insurance exchanges), and the expansion of the Children’s Health Insurance Program (which 

now covers 9.5 million children and has measurably improved health, labor market, and education 

outcomes for participants).

14. Despite the current favorable macroeconomic and labor market conditions, poverty 

rates remain close to levels that prevailed immediately before the financial crisis. According to 

the supplemental poverty measure (which measures poverty after accounting for the impact of 

government programs), almost 45 million Americans (or 13.9 percent of the population) are living in 

poverty with a little under one-half of adults that are below the poverty line working either full or 

part-time. This includes one-in-six American children, 27 percent of female-headed households, and 

more than one-fifth of blacks and Hispanics. This population is particularly reliant on federal and 

state-administered social programs that provide nutrition, healthcare, education, and housing. 

74

76

78

80

82

84

USA DEU GBR CAN FRA ITA JPN

G7 Life Expectancy at Birth (years)

1990 2000 2010

2015 2017

Sources: OECD and World Bank
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INTERNATIONAL MONETARY FUND 17

Box 5. The Social and Macroeconomic Toll of Opioid Addiction1

Over the past 15 years the U.S. has seen a worrisome 

rise in opioid usage, addiction, and deaths, particularly 

in the Northeast, Midwest, and Appalachia. A study by 

the Center for Disease Control estimated the 

economic cost in 2013 at US$78.5 billion while the 

Council of Economic Advisors estimates an economic 

cost of US$504 billion in 2015. There is a broad 

consensus that the economic costs are rising over 

time. 

This crisis is just one aspect of what has been termed 

the rise in “deaths of despair” arising from diminished 

economic opportunities, a growing sense of 

hopelessness, rising substance abuse, and, 

increasingly, suicide (see Case and Deaton, 2017). 

An assessment by the Centers for Disease Control

(CDC) indicates that the current opioid epidemic was 

catalyzed by a widespread expansion of doctors’

prescribing of non-morphine opioids for pain 

management in the late 1990s. During the 2000s, a 

steady increase in addiction to those pain medications 

led first to rising fatalities from prescribed opioids and, 

since 2010, a surge in heroin usage. By 2016, deaths 

from heroin, prescription opioids, and synthetic 

opioids were roughly at the same level. Since 2016, 

though, the wide availability of potent synthetic 

opioids (such as fentanyl) has led them to now 

become the leading source of U.S. overdose deaths. 

Most public health interventions have, so far, been undertaken at the state and local level but with Federal 

support (e.g. through State Opioid Response Grants to states and other programs of the Substance Abuse 

and Mental Health Services Administration, National Institutes for Health, and the CDC). Programs typically 

combine efforts to equip emergency services with anti-overdose medication, providing medication-assisted

treatment (often funded through Medicaid), improving pain management practices (to restrain the 

prescribing of opioids), expanding prescription drug monitoring programs, and undertaking education 

campaigns targeted at both the medical community and the general public. 

There are some preliminary signs these efforts are starting to bear fruit. In 2017, seventeen U.S. states saw a 

decline in fatal drug overdoses (with the steepest falls occurring in Massachusetts and New Hampshire). 

Among the subset of states that are collecting data under the CDC’s Enhanced State Opioid Overdose 

Surveillance program, there has been a 15 percent decline in opioid overdoses since 2016. 

1Authored by Peter Williams.

0

2

4

6

8

10

2000 2003 2006 2009 2012 2015

Heroin

Natural and Semi-synthetic*

Synthetic

Source: Centers for Disease Control

* Include prescription drugs

The Rise of Opioid Overdoses

(Deaths per 100,000)
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18 INTERNATIONAL MONETARY FUND

Figure 3. United States: The Nature of Poverty in the United States

A significant share of Americans live in poverty. One in 20 

Americans experiences extreme poverty. 

Among OECD countries, the U.S. spends less on social 

benefits and has one of the highest rates of poverty (when 

defined as the share of the population that earns below 50 

percent of median income).

While the poverty rate has come down as the economy 

recovered, it remains stubbornly high. 

Education levels, family situation and race largely 

determine poverty outcomes. 

15. The distribution of income is increasingly polarized. Although household incomes have 

been rising since 2014, the current level of the median household income is only 2.2 percent higher 

in real terms than it was at the end of the 1990s (this is despite real per capita GDP being 23 percent 

higher over the same period). Furthermore, as highlighted in past Article IV consultations, a growing 

share of the population is earning less than one-half of the median income.

10

15

20

25

30

35

0% 5% 10% 15% 20% 25%

USA

OECD average

Social Expenditures (Percent of GDP)

Poverty Rate (Percent)

Social expenditures and poverty outcomes

in the OECD (Percent)

Source: OECD

Note: Poverty line at 50% of median household income

CZE

FRA

CAN

UK

 -

 2

 4

 6

 8

 10

 12

 14

 16

 18

1987 1991 1995 1999 2003 2007 2011 2015

-3

-2

-1

0

1

2

3

4

5

6

Real GDP Growth at Annual Rate

Supplemental Poverty Measure

Source: Census, CPS (2017-2018 Annual Social and Economic Supplements). 
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16. Socioeconomic mobility has steadily eroded. Today, American children are considerably 

less likely than their parents to move up the economic ladder, and the probability that they earn 

more than their parents has seen a secular decline (from almost 90 percent, for those born in the 

1940s, to 50 percent for the current cohort of young adults). This decline in income mobility has 

been broad based but with larger declines for the middle class. Americans have also become less 

geographically mobile, with only 10 percent of the population moving in 2018. This has exacerbated 

regional disparities and worked against a more efficient allocation of labor.

Figure 4. United States: A Decades-Long Rise in Income and Wealth Inequality

The top 1 percent’s share of national income has steadily 

increased as the bottom 50 percent’s income share has 

declined.

Net wealth is even more polarized than income with the 

bottom 50 percent of the population having maintained

close to zero net wealth throughout the last 50 years.

Figure 5. United States: A Secular Decline in Socioeconomic Mobility

The prospects for the earnings of young adults is worse 

than for previous generations.

And fewer households are moving, which is also being 

reflected in more limited labor market mobility. 

40

50

60

70

80

90

1947 1952 1957 1962 1967 1972 1977 1982

Absolute Income Mobility

(Percent, by birth year)

Mean probability that child earns

more than parents

Source: Chetty and others, 2017, "The Fading American 

Dream: Trends in Absolute Income Mobility Since 1940." 

1

2

3

4

7

10

13

16

19

22

1980 1985 1990 1995 2000 2005 2010 2015

Geographical Mobility

(Percent of population)

Number of movers

Employment-related (rhs)

Source: Census, CPS, 1980-2018. Employmentrelated movers excluding retirees. 

10

13

16

19

22

1970 1978 1986 1994 2002 2010

Share of Pre-tax Income (percent)

Source: World Inequality Database

Top 1 percent

Bottom 50 percent

-5

5

15

25

35

45

1970 1978 1986 1994 2002 2010

Source: World Inequality Database

Top 1 percent

Bottom 50 percent

Share of Net Household Wealth (percent)
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20 INTERNATIONAL MONETARY FUND

17. By many measures, the U.S. has some of the most prominent educational 

establishments in the world and devotes significant resources to investing in tertiary 

education (around 3 percent of GDP, almost twice that of Germany and Japan). There remains a 

sizable wage premium to investments in tertiary education: a bachelor’s degree garners 60–80 

percent more income relative to just having a high school degree which is suggestive of the 

productivity gains associated with these investments in human capital. However, according to recent 

research, this wage premium has been declining for successive cohorts and, given the rising costs of 

tertiary education and significant variability in the quality of undergraduate programs, the lifetime 

wealth premium from completing college is now close to zero for a large share of the population.

18. The high level of spending on education has not translated into a significant 

improvement in education outcomes relative to OECD peers. Part of the reason has been that 

the real cost of education (particularly at the tertiary level) has been rising rapidly (for example, over 

the past decade, college tuition (net of financial aid) has risen by around 4 percent per year). This, in 

turn, has led to a rapid rise in student debt (average student debt now totals US$37,172 per recent 

college graduate and 2.2 million Americans have student debt in excess of US$100,000). A second 

shortcoming is the high noncompletion rate. Only 60 percent of enrollees in four-year colleges 

graduate within 6 years resulting in less than one-half of 25-34 year-olds having an undergraduate 

degree. 

19. The seeds of these disappointing tertiary education outturns are complex but are, in 

part, rooted in a range of inequalities in the PK-12 education system. Most U.S. states spend 

less today on K-12 education than they did prior to the financial crisis and, since education is locally 

funded, there are wide discrepancies in per-student funding across localities and very uneven access 

to publicly-funded pre-K. It is not surprising then that, on average, U.S. high school students 

consistently score below most G-7 countries in internationally comparable math and reading tests.

Figure 6. United States: Education Indicators

The U.S. spends more on tertiary education as a share of 

GDP than other OECD countries but this is not matched by 

measures of achievement.

Levels of student debt and rates of delinquency are both 

rising, despite a solid labor market and sustained GDP 

growth.
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INTERNATIONAL MONETARY FUND 21

20. The troubling social outcomes described above are having negative effects at the 

macroeconomic level. For example:

• Those living in poverty have a narrower range of opportunities and resources, leading to lower 

labor force participation, higher rates of incarceration, worse education and health outcomes, 

and lower productivity. This is particularly pernicious for children that are growing up below the 

poverty line. 

• The high cost of healthcare and lack of universal coverage diminish human capital, reduce 

working lives, and create important private and public costs that are increasingly weighing on 

the fiscal position. 

• Variable quality, high costs, and unequal public funding of K-12 and college education serve to 

perpetuate inequalities and erode the supply of productive, skilled labor. 

• The polarization in wealth and income suppresses aggregate demand (particularly household 

consumption), reduces social mobility, and worsens the inequality of economic opportunities 

(particularly for the young). 

There are also important interconnections between these various social outcomes as well as a twoway feedback between these different dimensions of social welfare and macroeconomic outturns.

21. Addressing the growing divergences between the aggregate fortunes of the real 

economy and the standard of living for the bulk of the U.S. population is complex and will 

require action on many fronts. Such policies include:

Providing Family-Friendly Benefits 

• Requiring employers to provide paid family leave. 

• Providing means-tested assistance to families to help defray child and dependent care expenses. 

Supporting the Poor

• Expanding the eligibility for, and increasing the generosity of, the Earned Income Tax Credit 

(EITC) to support lower income households and incentivize work. This should include more 

generous treatment for workers without dependents, those under 25, and older workers that are 

not yet eligible for social security. 

• To lessen the risk that an expanded EITC leads to a decline in pre-tax wages at the bottom of the 

income distribution, changes in the EITC should be combined with an increase in the federal 

minimum wage. 

• Upgrading federal and state social assistance to simplify the multitude of programs, increase the 

generosity of direct transfer programs, avoid “cliffs” in the phase out of social benefits as 

disposable income rises (Box 6), and better target federal payments to program outcomes.
UNITED STATES

22 INTERNATIONAL MONETARY FUND

Box 6. Social Assistance Programs

Social programs currently lift around 45 million Americans out of poverty (see Census, 2018). 

The Supplemental Nutrition Assistance Program (SNAP), refundable tax credits—notably the Earned Income 

Tax Credit, the refundable portion of the Child Tax Credit, and health insurance premium tax credits (for 

lower income families that purchase health insurance through the Health Insurance Marketplace)—and 

Supplemental Security Income (for the elderly, blind and disabled) are the main programs in place to 

alleviate poverty. Poor children benefit particularly from refundable tax credits and the nutrition benefit 

programs (combined, the direct cost of these two programs is less than 1 percent of GDP). 

While eligibility varies by social program and by state, for most social assistance there is a phase out as 

personal income rises and benefits are sometimes cut abruptly at specific income thresholds resulting in 

“cliffs” (see Steuerle, 2012 for a graphical illustration of eligibility cliffs). Programs are typically not 

coordinated and benefits across multiple programs are sometimes eliminated simultaneously at certain 

levels of income. This phase-out typically occurs before a household reaches levels of income that would 

allow them to be fully self-sufficient. This could mean that increased earnings can push a household back 

below the poverty line (because of a loss of their social assistance benefits). 

A smoother phase-out of social assistance programs as income rises—in the same way as the EITC currently 

does—would help improve social outcomes. Income eligibility limits for each individual program could be 

extended to higher levels of income and, in addition to a gradual phase-out, there could be a greater 

coordination in eligibility across programs (to harmonize eligibility thresholds and prevent several programs 

expiring around similar levels of income). Further, given the importance of assistance programs in 

addressing poverty for children, consideration could be given to increasing the generosity of benefits that 

are most incident on the young (such as SNAP, the refundable child tax credit, and support to child care 

services) to better support the challenges facing single-parent households with incomes at or close to the 

poverty line.

-40

-35

-30

-25

-20

-15

-10

-5

0

Other

Family support and TANF

Housing subsidies and home energy

assistance

Food and nutrition assistance

Refundable tax credits

Social Security

Source: Census, CPS, 2017-2018 Annual Social and Economic Supplements.

Under 18 Years 18-64 Years 65 Years and over

Number of Americans Lifted Out of Poverty: 2017

(Million people)

6.2

4.8

0.4

0.5

0.2

0.1

0

2

4

6

8

10

12

14

% of GDP

Family support payments to

States and TANF

Housing assistance

Food and nutrition

assistance

Refundable tax credits

Social security

Medicare/ 

Medicaid

Source: Office of Management and Budget (2019).

Other

Outlays for Payments to All Individuals: 2018 

(Federal expenditures in percent of GDP)
UNITED STATES

INTERNATIONAL MONETARY FUND 23

Expanding Healthcare Coverage and Tempering Healthcare Costs

• Protecting the gains in health care coverage that have been achieved since the financial crisis, 

particularly for those at the lower end of the income distribution. 

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

incentives to increase efficiency and improve pricing transparency by healthcare providers. The 

goals should be to help improve market discipline, reduce pricing variability, and ultimately 

contain inflation in healthcare services. 

• Capitalizing on the range of experiences at the state and local level to deploy, and fund, 

effective programs (including medication assisted treatments) to counter the upswing in opioid 

addiction and related deaths.

• Assessing the scope to apply antitrust or other solutions to cases where the market 

concentration of health providers or insurers has increased and there are unreasonable restraints 

of trade and/or where premiums for non-group policies have been rising rapidly.

Improving Education Outcomes 

• Better prioritizing spending on education to provide greater resources for early childhood 

education and for universal pre-K (both of which have been linked to higher educational 

attainment). 

• Designing Federal programs to provide greater support for science, technology, engineering 

and mathematics programs. 

• Redesigning the funding model for public schools to reduce funding differentials across districts 

and to provide more resources to schools with a higher concentration of students from lowincome households. 

• Expanding apprenticeship and vocational programs to offer attractive, non-college career paths 

to workers of all ages. 

• Increasing the focus on preparing students for college and, once those students are enrolled, 

expanding programs that foster retention and actively advise students (including to raise 

awareness of how to manage the financial dimensions of their college investment). 
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24 INTERNATIONAL MONETARY FUND

22. Some of these measures will imply higher fiscal costs that will need to be offset both 

by tackling entitlement spending and raising revenues (see below). However, addressing these 

troubling social outcomes will help strengthen human capital, increase labor force participation, 

boost productivity, support aggregate demand, and raise medium-term growth and job creation.

Authorities’ Views

23. The administration noted any solution to poverty and material hardship needs to be 

couched in helping low-income households become more self-sufficient by bringing workers 

off the sidelines and into productive employment. This can be achieved by strengthening work 

requirements in a range of welfare programs (including SNAP and Medicaid) and increasing meanstested child care assistance. In this regard, the substantial expansion of the Child Tax Credit as part 

of the Tax Cut and Jobs Act has helped support lower income parents and increased their incentive 

to work. Significant gains could be made in K-12 education outturns by allowing families greater 

choice over where they attend school and allowing public education funding to follow the student 

to whichever school environment best fits their needs. The administration is committed to 

expanding apprenticeship initiatives to make such work-and-learn programs a viable path to a 

prosperous career. Finally, decisively tackling opioid abuse continues to be a priority for the 

administration through increased access to treatment and recovery services, prescription drug 

monitoring programs, and cracking down on illegal drug supplies.
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INTERNATIONAL MONETARY FUND 25

THE U.S. FISCAL POSITION IS UNSUSTAINABLE 

24. The structural primary deficit of the federal government has steadily deteriorated 

since the beginning of the current administration. Policy changes were put in place for 2018-19

that increased both defense and nondefense spending as well as significantly reduced taxes on both 

households and corporates. This fiscal expansion has supported economic activity and allowed the 

U.S. to achieve close to 3 percent growth in 2018 at a time when the global economic expansion was 

weakening. However, the shift in policy has also increased the debt-to-GDP ratio (to 78 percent of 

GDP for the federal government and 107 percent of GDP for the general government). Under 

current policies, the public debt burden is 

expected to continue its upward path throughout 

the medium-term, particularly as aging related 

spending rises. Although the U.S. is judged to have

some fiscal space, it should not be using it at this 

stage in the cycle. The demand stimulus from U.S. 

fiscal policy is having positive demand spillovers to 

other countries for the time-being but is adding to 

medium-term risks (notably, the reversal in fiscal 

impulse planned for 2020 has the potential to 

create adverse effects for overseas corporates, 

households and sovereigns).

25. The estimated fiscal cost in 2018-2027 of the Tax Cuts and Jobs Act has risen from 

US$1.5 trillion (at the time of approval) to US$1.9 trillion (or 10 percent of current GDP) in 

most recent estimates. Despite this increased cost, the evidence so far suggests that businesses 

have either saved or redistributed to shareholders much of the tax windfall. There is less evidence 

the tax overhaul has led companies to increase outlays on physical capital and R&D. Indeed, the rise 

in investment that occurred in 2018 is largely explained by the increase in aggregate demand arising 

from the contemporaneous fiscal stimulus (rather than from a supply side response to a lower 

effective corporate tax rate). 

Although it is too soon after the 

entry into force of the tax 

overhaul to come to firm 

conclusions, one possible 

explanation for this tepid 

response of investment to a 

lower corporate tax burden

could be a result of the higher 

market power of U.S. 

corporations when compared to

previous tax cut episodes (Box 7).

Overall balance, FY2016 -3.2

Revenue losses from TCJA 1/ -1.4

Higher spending from Appropriations 

and Bipartisan Budget Acts of 2018 -0.5

Impact of higher growth 0.4

Other 0.4

Overall balance, FY2019 -4.2

Federal Budget Deficit and Impact of Recent 

Fiscal Policy Measures, FY2017-19

(percent of GDP)

1/ CBO, The Budget and Economic Outlook: 2018 to 

2028 (April 2018) and IMF staff calculations

0.0 1.0 2.0

Mertens and Ravn (2013)

Mertens and Ravn (2014)

Romer and Romer (2010)

Mertens and Ravn (2012)

Favero and Giavazzi (2012)

Blanchard and Perotti (2002)

Caldara and Kamps (2017)

Actual

GDP

(Percent)

0.0 2.0 4.0 6.0 8.0

Business Investment 

(Percent)

Impact of Tax Cuts and Jobs Act on 2018 Growth: 

Actual vs. Predicted Based on Existing Empirical Estimates

Source: Mertens (2018) and IMF staff calculations. Actual denotes real outcome compared with 

Fall 2017 IMF staff forecast, which assumes unchanged U.S. fiscal policies.
UNITED STATES

26 INTERNATIONAL MONETARY FUND

26. There is a menu of policy options to address the unsustainable U.S. fiscal position. 

Under current policies, the federal deficit will remain 

stuck at high levels (an average primary balance of 

around –2 percent of GDP over the next decade) and 

the federal debt will steadily rise (to 88 percent of 

GDP by 2030). This is not a sustainable policy path. 

Gradually increasing the primary fiscal balance of the 

federal government to around 13⁄4 percent of GDP (1 

percent of GDP primary surplus for the general 

government) would serve to put the debt-to-GDP 

ratio on a downward path over the medium term. 

Measures that could achieve this sizeable adjustment 

could include:

• Raising the income ceiling for social security contributions.

• Indexing social security benefits to chained inflation. 

• Front-loading the planned increase in the retirement age. 

• Containing healthcare cost inflation through technological solutions that increase efficiency, 

encourage greater cost sharing with beneficiaries, and change the mechanisms for remunerating 

healthcare providers. 

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

consumption tax, and a higher federal gas tax. 

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

support low- and middle-income families, address social inequalities and improve welfare, expand 

public investments in human and physical capital, and increase medium-term growth, productivity, 

and job creation.

27. It is worth noting that other supply-side measures that sustainably raise potential 

growth would reduce the size of the policy adjustment that is needed to achieve fiscal 

sustainability. For example, legislating a skills-based immigration reform (a plan has recently been 

proposed by the administration) could increase both productivity and the size of the labor force as 

well as lessen the pressures from aging, with beneficial consequences for the debt-GDP dynamics. 

Other long-standing recommendations for raising potential output include upgrading public 

infrastructure, simplifying and harmonizing regulations across states, supporting low- and middleincome households, and improving education outcomes (see 2017 Article IV for a summary).

65

70

75

80

85

90

95

2018 2020 2022 2024 2026 2028

Federal Debt Held by the Public

(percent of GDP, fiscal year)

Baseline

Adjustment
UNITED STATES

INTERNATIONAL MONETARY FUND 27

Box 7. The Impact of the Corporate Income Tax Cut 1

U.S. business investment grew strongly in 2018. The overriding factor supporting this higher investment has 

been the overall strength in aggregate demand (in part driven by the large fiscal stimulus enacted in 2017-18). 

The reduction in the corporate cost of capital associated with the Tax Cuts and Jobs Act seems to have had a 

relatively minor supply-side impact on capital formation.

In 2018, U.S. business investment grew 31⁄2 percent faster than had been anticipated prior to the enactment 

of the 2017 Tax Cuts and Jobs Act (TCJA) and the passage of the 2018 Bipartisan Budget Act (BBA). This 

increase is consistent with a forward-looking 

accelerator model in which investment responds to 

expectations of future overall demand (as measured by 

private-sector forecasts of growth in the noninvestment part of output). This would imply that 

factors that boosted aggregate demand—including the 

rise in disposable household income from the TCJA and 

the government spending increase from the BBA—were 

the main forces supporting higher investment. Other 

factors, such as reductions in the cost of capital from 

the TCJA business tax provisions, appear to have played 

a more minor role.

The impact of the tax changes on investment appear to 

be corroborated by other data: 

• Around 20 percent of the increase in corporate cash 

balances for S&P500 firms has been used for capital 

and R&D spending. The remainder has supported 

share buybacks, dividend payouts, and other assetliability planning and balance sheet adjustments.

• Business surveys suggest that only 10-25 percent of 

firms chose to bring forward or increase investment 

as a result of the 2017 changes in the tax code

What could explain this relatively muted response 

of investment to a lowering in the effective tax rate? 

Simulation results from a dynamic general equilibrium 

model suggest that the elasticity of investment to tax 

changes could have declined over the past 30 years due

to the rise in corporate market power (as documented in 

Diez, Leigh and Tambunlertchai 2018 and IMF 2019). 

This is also borne out in firm-level data where the impact 

of tax changes on investment and employment in 2018 

has been significantly smaller for those firms with higher 

markups when compared with those firms that price 

closer to marginal cost. 

1 See E. Kopp, D. Leigh, S. Mursula, and S. Tambunlertchai, “U.S. Investment since the Tax Cuts and Jobs Act of 2017,” IMF 

Working Paper 19/120, 2019.

0

10

20

30

40

50

60

70

80

90

100

Capex R&D Buybacks,

Dividends, others

Change in the Use of Cash Since 2017

(percent of total; S&P Global)

0.0

1.0

2.0

3.0

4.0

5.0

Real GDP Real

investment

Real wage Employment

Low markups (1980 level)

High markups (2016 level)

Source: Global Integrated Monetary and Fiscal (GIMF) model simulations

Macroeconomic Impact of 1% of GDP Corporate 

Income Tax Cut (Percent; impact after10 years)
UNITED STATES

28 INTERNATIONAL MONETARY FUND

28. The prolonged government shutdown earlier this year demonstrates, once again, the 

dysfunction inherent in the U.S. budgetary process. Such policy-induced uncertainty is not good 

for the U.S. economy and has negative outward spillovers for the rest of the global economy. It will 

be important, therefore, to find institutional mechanisms to avoid such self-inflicted wounds that are 

created by political brinkmanship. Solutions that should be considered include:

• Permanently shifting to a budget cycle where annual spending levels are agreed for a two-year 

period (helping to divorce budget decisions from the electoral calendar). 

• Introduce provisions to automatically continue funding government functions, perhaps at 

reduced levels, if appropriations agreements cannot be met before spending authority expires. 

• Contemplating new legislative approaches that trigger automatic revenue or spending 

adjustments in the event that congress-approved fiscal targets are breached. 

• Replacing the existing debt ceiling with a bipartisan agreement on a clear, simple medium-term 

fiscal objective (that takes an integrated view of all budget functions and has explicit numerical 

goals for both debt and deficit). Failing such a broader agreement, it would be a step forward if 

legislation could, at least, be designed to automatically adjust the debt ceiling once an

agreement is struck on appropriations.

Authorities’ Views

29. The President’s Budget argues for reaching a federal primary surplus of 1.8 percent of 

GDP by 2029 without increases in federal taxes. Rather, this deficit reduction would be achieved 

through a reprioritization of Federal spending. and the Administration’s “two-penny” plan budget 

proposal reduces non-defense discretionary funding by two percent per year from 2021 to 2029 and

increases funding for border security, national defense, law enforcement, and programs to tackle the 

opioid epidemic. The administration also saw improving U.S. infrastructure as an important goal and 

has proposed providing up to US$200 billion in federal funding to incentivize state, local and private 

providers to invest in up to US$2 trillion in infrastructure projects over the course of the next 10 

years. The Administration supports a clean and prompt increase to the debt ceiling. However, 

ultimately such changes were outside the authority of the Executive and would have to be legislated 

by Congress. Finally, as a broader reform of legal immigration, the administration has proposed 

increasing the number of legal immigrants that are selected based on skill or merit from the current 

12 percent to 57 percent of total legal immigrants.
UNITED STATES

INTERNATIONAL MONETARY FUND 29

MONETARY NORMALIZATION—REST STOP OR END OF 

THE LINE?

30. After raising the federal funds rate in December, Federal Reserve officials and the 

FOMC markedly changed their communications in January. At the time of the December 

meeting, the median of Fed Board members and the regional Fed presidents envisaged 75 basis 

points increase in the federal funds rate in 2019-20. However, by early January, Chair Powell 

expressed concerns over the global outlook and indicated the Fed would be “listening sensitively to 

the message that markets are sending”, “patient as we watch to see how the economy evolves”, and 

“prepared to adjust policy quickly and flexibly and to use all of our tools to support the economy”. 

This had an immediate effect on improving market sentiment and lessening risk aversion. These 

forces were further fueled at the January FOMC meeting when the forward bias for further gradual 

increases in policy rates and the assessment that risks to the outlook were balanced were both 

removed from the statement. Finally, at the March FOMC meeting, the Fed reaffirmed its guidance 

and indicated that most participants envisaged no further policy rate increases in 2019. 

31. Over the past few months, inflation rates have again declined as a result of large, 

downward shifts in specific components of the PCE index. On the one hand, it can be argued 

that such temporary drags on core and headline inflation should be looked through since they will 

wash out of price statistics over time. However, looking over the past decade or more in the U.S., 

such idiosyncratic and temporary price changes have represented a persistent headwind to inflation

outturns, keeping core PCE inflation persistently below other measures of underlying inflation (such 

as trimmed mean or median PCE). 

32. In deciding future movements in the federal funds rate, the Fed should carefully weigh 

the balance of potential risks to employment and inflation (Box 8). On the one hand, further 

increases in policy rates at this stage run the risk of triggering an abrupt tightening of financial 

conditions (through a stronger dollar, lower equity prices, and a repricing of risk premia) which 

0

1

2

3

4

1995 2000 2005 2010 2015

PCE Inflation (percent, q/q saar)

Median PCE

Core PCE

Sources: BEA and IMF staff calculations.

0

0.2

0.4

0.6

0.8

1

1.2

-2 -1 0 1 2

Density

Distribution of Deviations Between Core and 

Median PCE (percentage points; q/q saar)

Source: IMF staff calculations. Distribution of quarterly 

changes in core PCE relative to median PCE inflation.

2007-2019Q1

1975-1994
UNITED STATES

30 INTERNATIONAL MONETARY FUND

would damage growth and employment prospects. However, these considerations need to be 

balanced against the risk that wage or price inflation will accelerate as capacity constraints become 

more binding, requiring policy rates to rise at a faster pace than is currently anticipated (which 

would also potentially create future market volatility and put downward pressure on activity and 

employment). 

33. On balance, further increases in the policy rate should be deferred until there are 

greater signs of wage or price inflation than are currently evident. Falling inflation, firmly 

anchored expectations, strong Fed credibility, evidence of a flat trade-off between inflation and slack 

and continued uncertainties around the global outlook and where the neutral interest rate is all 

argue in favor of a pause to further changes in monetary policy. Such a pause will give policymakers 

time to gauge the balance of risks to both inflation and employment outcomes and to build a 

clearer picture of whether further adjustments in the federal funds rate are warranted. It is also 

possible that continued policy accommodation could generate lasting, positive supply side effects as 

scarce labor resources are allocated more efficiently and as labor force participation increases

(Box 9). The challenge in setting monetary policy will be to judge when this margin of supply side 

improvement may be exhausted. Furthermore, this pause in policy rate increases will have positive 

outward spillovers to other countries. As discussed in the October 2013 WEO, lowering the path for 

the federal funds rate by 25 basis points has positive outward spillovers to activity in other countries,

increasing industrial production for the average country by around 0.2 percent. Historically, the 

largest effects are felt in Latin America and Asia.

34. Given the likelihood and severity of downside risks to inflation and the asymmetries 

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

overshooting of the Federal Reserve’s inflation goal. This would allow inflation to approach the 

FOMC’s 2 percent medium-term target from above. Given the apparent lack of inflation momentum,

and barring an unanticipated steepening in the trade-off between slack and inflation, achieving such 

an overshoot will likely require leaving the federal funds rate at current levels for at least the next 

few FOMC meetings. Under staff’s baseline forecast, the U.S. economy is expected to continue 

growing faster than potential both this year and next, the policy rate is forecast to resume its 

gradual upward path later in 2019 or during 2020, and both core and headline PCE inflation 

modestly overshoot 2 percent in 2020. 

35. The Fed’s continued adherence to the principles of data dependence and clear, 

forward-looking communication will be vital to avoid creating volatility in financial 

conditions or negative spillovers to the rest of the world. To assist in this communication effort, 

the Fed could consider publishing a quarterly monetary policy report that details a central economic 

scenario, that is endorsed by the FOMC, and is accompanied by a quantification of how FOMC 

members see the distribution of risks around that scenario.
UNITED STATES

INTERNATIONAL MONETARY FUND 31

Box 8. Salient Risks to Growth and Inflation

Risks to inflation. Over the past decade, the U.S. 

has maintained very well anchored inflation 

expectations. The output gap exerted downward 

pressure on inflation for much of that period and 

core PCE inflation struggled to rise to the Federal 

Reserve’s 2 percent medium-term target. This past 

history, and the recent flow of data, suggest there 

are continued downward risks around staff’s forecast 

of PCE inflation (likely either due to inflation 

expectations of prices setters being below 2 percent 

or because of headwinds from repeated negative 

relative price changes, perhaps associated with 

secular changes in technology).

Trade-related risks. Ongoing trade tensions 

emanating from the U.S. are adversely impacting 

global trade and production (both directly and 

through increased policy uncertainty and the impact 

on confidence and on financial conditions). Estimates 

suggest that investment falls by 1-11⁄4 percent in 

response to a one-standard deviation shock to policy 

uncertainty. However, this is a two-sided risk. A swift 

resolution of ongoing trade tensions and approval of 

the U.S.-Mexico-Canada trade agreement could 

represent an upside risk to the outlook. 

The policy mix. The expansionary fiscal policy that is 

current in place is creating domestic imbalances, 

particularly since it comes at a time when the 

economy is already operating above potential. Under current policies, the fiscal stimulus is expected to 

reverse in 2020 which could lead to a sharper-than-expected deceleration over the next two years. 

Macro-financial risks. Nonfinancial corporates have seen a significant increase in indebtedness in recent 

years and lower-rated entities have had open access to debt financing. The rise in leveraged lending is one 

symptom of this overall weakening of lending standards. The combination of leverage, fragile balance 

sheets, a slowing economy, and potential for financial market volatility and a tightening of financial 

conditions (as was evident in late-2018) could create adverse macro-financial feedback loops, amplifying the 

impact from an expected slowing of growth, and increasing downside risks to the outlook.

0

100

200

300

400

500

600

2005 2007 2009 2011 2013 2015 2017 2019

Policy Uncertainty Index

Economic policy

Trade policy
UNITED STATES

32 INTERNATIONAL MONETARY FUND

Box 9. Hysteresis and the Scope for Continued Monetary Accommodation1

Demand-driven labor market expansions appear to have persistent effects on both forecasts and outcomes, 

suggesting that maintaining an accommodative policy stance, even at a late stage in the economic expansion,

may have positive long-run, supply-side benefits. 

Conventional wisdom suggests that labor market booms typically have transitory effects. However, a number 

of studies since the global financial crisis find that cyclical fluctuations have longer-term effects, suggesting 

hysteresis.2

In line with these studies, new evidence from a panel of advanced economies over the last 30 years shows 

that professional forecasters tend to revise upward their outlook for longer-term employment and labor 

force participation in response to positive revisions to current-period employment. Specifically, the analysis 

isolates positive demand-side shocks (where unemployment unexpectedly falls and inflation unexpectedly 

rises) and finds that, during such episodes, forecasters increase not only their near-term forecasts but also 

raise their outlook for employment and labor force participation over a longer horizon (revising downward 

their medium-term forecast of the unemployment rate). The magnitudes of these revisions are not small. For 

a 1 percent surprise in current-period employment, the 5-year ahead forecast for employment rises by 1.7 

percent, with a 1.3 percent upward revision in labor force participation. 

Estimated Responses of Forecasts to a 1 Percent Demand-Driven Employment Expansion

Furthermore, these medium-term forecasts appear to neither over- nor under-estimate realized labor market 

outcomes. As such, this combination of (i) persistence in forecast revisions and (ii) that forecasts are 

unbiased estimates of future outcomes suggests that positive demand shocks can generate long-lasting 

(supply-side) effects in labor markets (i.e., that there is “positive hysteresis”). Such longer-run effects could 

arise, as Yellen (2016), Blanchard (2018), and Powell (2018) discuss, as a result of being able to bring 

discouraged workers back into the labor force, encouraging more efficiency-enhancing job switches as labor 

markets tighten, enhancing human capital through on-the-job training, and prompting more investment 

into physical capital and research and development.

1 See J. Bluedorn and D. Leigh,” Hysteresis in Labor Markets? Evidence from Professional Long-Term Forecasts” IMF 

Working Paper 19/114, 2019.

2 See Ball 2009 and 2014; Erceg and Levin 2014; Blanchard, Cerutti, and Summers 2015; Martin, Munyan, and Wilson 2015; 

Fatás and Summers 2018; Yagan 2018; and others.
UNITED STATES

INTERNATIONAL MONETARY FUND 33

36. With the federal funds rate now moving above the rate of interest on excess reserves, 

the Fed’s announcement to end its balance sheet normalization by the end of this year 

appears warranted. Understanding changes in the demand for reserves and adjusting supply to 

ensure the fed funds rate is aligned within the target may become more challenging as balance 

sheet normalization progresses. Barring a significant negative shock (i.e. one where sufficiently 

accommodative monetary conditions cannot be achieved through reductions in the policy rate), the 

adjustments to the balance sheet should proceed as outlined in the March principles. It will be 

important to communicate clearly that decisions on the size of the Fed’s balance sheet are technical 

in nature and not to be interpreted as a change in the monetary policy stance.

37. The Federal Reserve’s ongoing review of its monetary policy strategy, tools and 

communications is a timely effort to assess how the Fed can best continue to meet its dual 

mandate. There is a growing consensus that the decline in various estimates of the neutral interest 

rate in recent decades has increased the likelihood that monetary policy will be constrained by the 

effective lower bound in future recessions. In 

addition, despite the Fed pursuing a symmetric 

target, personal consumption expenditures 

inflation has been stubbornly below the Fed’s 

medium-term target for much of the past 

decade. The Fed’s ongoing assessment of 

alternative strategies for meeting its dual 

mandate will, therefore, be invaluable in helping 

to inform the formulation of policies and to 

ensure the continuing credibility of the Fed’s 

clear commitment to its mandate of maximum 

employment and stable prices.

38. Beyond possible changes to the monetary policy strategy, providing greater clarity 

and a more holistic picture of the expected evolution of the operating framework for 

monetary policy would be valuable. The Federal Reserve has provided significant information 

about its expectations for the size of its balance sheet over the coming years. However, less is 

known about the broader future operating framework. The current “floor” system appears to be 

working well but has been associated with periodic spikes in short-term money market rates. A 

standing repo facility may, therefore, be helpful in capping spikes in money market rates during 

episodes where there is a temporary higher demand for reserves (e.g. at end-month or end-quarter). 

In addition, consideration should be given to moving away from the federal funds rate as the 

operating target (since it is currently transacted only between a narrow group of participants) and 

adopt instead a broader measure of the cost of overnight borrowing. Finally, there is a case to return 

to a point target for the chosen policy rate, rather than continuing with the current target range. 

Authorities’ Views

39. There was an expectation among monetary policy officials that, while the economy 

would slow, the expansion of economic activity would continue, and labor market conditions 

0

1

2

3

4

2005 2007 2009 2011 2013 2015 2017 2019

Estimates of the Long-run Real Neutral Rate 

(percent)

Sources: Federal Reserve Board of Governors and Federal Reserve 

Bank of New York

FOMC Summary of Economic Projections

Laubach-Williams
UNITED STATES

34 INTERNATIONAL MONETARY FUND

would remain strong. Inflation outcomes had been softer-than-expected over the past few 

months. Nonetheless, officials were confident that inflation would, over the next few years, still rise 

back to the Fed’s longer-run objective of 2 percent as labor markets remained tight and wage 

pressures were allowed to build. There was little to suggest that the recent fall in inflation away from 

the 2 percent reached for much of 2018 was anything other than a transitory phenomenon and 

there was little evidence of more persistent headwinds to PCE inflation. Nonetheless, the Fed was 

attuned to the possibility that low inflation expectations could be exerting downward pressure on 

inflation. Alternatively, there could possibly be more slack in the labor market than was suggested 

by usual measures. Officials did not want to pre-empt the broad-based assessment of monetary 

policy strategy, tools, and communications that was already underway but did expect the findings of 

this review to be considered by the FOMC in the latter part of this year and could lead to 

evolutionary changes in the framework. On the operating framework, the Federal Reserve intends to 

continue to implement monetary policy in a regime in which an ample supply of reserves ensures 

that control over the level of the federal funds rate and other short-term interest rates is exercised 

primarily through the Federal Reserve's administered rates and in which active management of the 

supply of reserves is not required. Beyond these general principles, officials saw little urgency to 

articulate more details about how the operating framework may evolve over the medium-term.

A MORE OPEN, STABLE, AND TRANSPARENT, RULESBASED INTERNATIONAL SYSTEM FOR TRADE AND 

INVESTMENT

40. Trade policy uncertainties remain high, creating negative consequences for the U.S.

and for global activity. Tariffs remain in place on steel, aluminum, and certain household 

appliances; tariffs on US$200 billion of imports from China have been increased to 25 percent (with 

a potential for a further expansion of tariffs); and the USMCA has not been approved by national 

legislatures. The U.S., Mexico and Canada Agreement (USMCA) could, if approved, alleviate 

uncertainty and provide some modernization in the areas of services, e-commerce, and data 

transparency. In addition, the recent elimination of U.S. tariffs on steel and aluminum imports from 

Canada and Mexico (as well as the elimination of the Canadian and Mexican retaliatory tariffs) was a 

positive development. Nonetheless, the USMCA still has important shortcomings including more 

stringent rules of origin requirements and a provision that discourages USMCA members from 

negotiating free-trade agreements with non-market economies. Finally, a decision on whether to 

raise tariffs on imported auto vehicles and parts—including those from North American trading 

partners—under Section 232 of the 1962 Trade Expansion Act has been deferred for 180 days.

41. On May 23, the Department of Commerce issued a notice of proposed rulemaking that 

would allow the imposition of countervailing duties on countries that are viewed as 

subsidizing their own exporters by undervaluing their currencies relative to the U.S. dollar. If 

the proposal is adopted, it would raise significant questions of how to judge the degree of such 

undervaluation and the consistency of the proposal with the U.S. international obligations, including 

at the WTO. Further, it could encourage trading partners to either respond with retaliatory trade 
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INTERNATIONAL MONETARY FUND 35

barriers or to themselves regard currency undervaluation as a subsidy and may have implications for 

a country’s conduct of monetary policy.

42. On May 30 the administration invoked the International Emergency Economic Powers 

Act to impose a 5 percent tariff on all goods imported from Mexico, starting on June 10, 

unless Mexico takes effective actions to curb illegal immigration across the Southern Border.

Should the U.S. deem Mexico’s actions against illegal immigration are insufficient, the tariffs would, 

on the first day of each subsequent month, be progressively raised in 5 percent increments until 

they reach 25 percent on October 1.

43. As highlighted in the April 2019 World Economic Outlook, trade tensions and tariff 

hikes have had negative outward spillovers, contributing to the deceleration in the global 

economic expansion in the second half of 2018. Further the October 2018 World Economic 

Outlook illustrates that higher import tariffs imposed by the United States, along with retaliatory 

measures by trading partners, has the potential to inflict significant costs on the global economy, 

particularly if such policy choices were to feed into confidence and tighten financial conditions.

44. For the global economy to function well, it needs to be able to rely on a more open, 

more stable, and more transparent, rules-based international trade system. Rising import tariffs 

and other steps taken by the administration are undermining the global trading system, increasing 

restrictions on trade in goods and services, and catalyzing a cycle of retaliatory trade responses. The 

U.S. and its trading partners should work constructively to better address distortions in the trading 

system that are partly rooted in the system’s inability to adapt to long-term changes in the 

international environment. It is especially important that the trade tensions between the U.S. and 

China—which represent a threat to the global outlook and create important negative spillovers to 

other countries—are quickly resolved through a comprehensive agreement that strengthens the 

international system (not through a managed trade deal that targets a compression in the bilateral 

U.S.-China trade deficit). As highlighted in the April 2019 World Economic Outlook, tariff measures 

are likely to be ineffective at containing bilateral trade deficits and will be damaging to the U.S. and 

to global macroeconomic outturns. Instead, the U.S. external imbalance will need to be addressed 

through fiscal adjustment and supply side reforms that improve productivity and competitiveness. 

45. The U.S. would gain by working with international partners to strengthen the rulesbased, multilateral trading system. This should include advancing trade negotiations in areas such 

as e-commerce and services and ensuring the continued enforceability of existing WTO 

commitments through a well-functioning WTO dispute settlement system. 

46. Finally, greater attention needs to be paid to the welfare of those workers dislocated 

by the ongoing reshaping of the U.S. economy by technology and trade. This will require 

intensifying policy efforts including through greater public investments in training and education, 

temporary income support, and job search assistance.
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36 INTERNATIONAL MONETARY FUND

Authorities’ Views

47. The administration recognized the benefits of international trade and investment, 

while pointing to the need for reforms to address the shortcomings of the WTO and other 

trade rules. They viewed China as pursuing policies that were unfair and discriminatory, creating

burdens on U.S. companies, some of which were not adequately remedied through the WTO. Key 

concerns include pressure on U.S. companies to transfer technology, weak protection and 

enforcement of intellectual property rights, sponsoring cyber theft and intrusion into the 

commercial networks of U.S. companies for commercial purposes, tariffs and non-tariff barriers, 

including subsidy practices that lead to excess global capacity, and services and agricultural market 

access. The U.S. is seeking to end such practices and to achieve a more fair, balanced, and reciprocal 

trading arrangement with China. The administration noted one of its top priorities is to obtain 

Congressional approval of the USMCA. The administration is confident that approval of the USMCA 

will modernize and rebalance America’s trade relationship with Canada and Mexico, boost economic 

growth, and create jobs for American workers, particularly in manufacturing. On the question of 

considering currency undervaluation as a countervailable subsidy, this evaluation would be one 

component of a case initiated by the International Trade Administration in the U.S. Department of 

Commerce to provide relief to U.S. industries from the harmful effects of unfairly traded imports. 

The U.S. Treasury would be consulted regarding the analysis of undervaluation.

GOVERNANCE AND TRANSPARENCY

48. According to the latest (2016) Financial Action Task Force (FATF) Mutual Evaluation 

Report of the United States (MER), the U.S. is substantially effective at investigating and 

prosecuting money laundering and cooperating with other jurisdictions over corruption 

proceeds in the U.S. The authorities understand that the U.S. is often a desirable destination for the 

proceeds of foreign predicate offenses, including corruption.1 They have also identified that complex 

legal structures are often used to hide ownership and control of illegal proceeds and that the highend real estate sector may be vulnerable to money laundering abuse. To help mitigate these 

circumstances in relation to foreign corruption, the Department of Justice has a dedicated 

Kleptocracy Asset Recovery Initiative which focuses on recovering the proceeds of foreign official 

corruption. Since 2010, it has restrained US$2.8 billion in assets, and repatriated over US$150 million 

to countries affected by corruption. 

49. Since the MER was published, the U.S. has continued to take non-prosecutorial efforts 

to combat corruption. In December 2017, the United States issued an Executive Order declaring a 

national emergency with respect to, amongst other things, corruption around the world and 

providing for the imposition of sanctions on actors engaged in corrupt activities which have resulted 

in 66 corruption-related designations (as of May 16, 2019). The U.S. Treasury has issued numerous 

 

1 This understanding is reflected in successive National Money Laundering Risk Assessments. For example, the 2018 

version recognizes that the proceeds of domestic and foreign corruption continue to represent a significant threat to 

the U.S. financial system. 
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INTERNATIONAL MONETARY FUND 37

corruption-related advisories to inform financial institutions, governments, and non-governmental 

organizations about the ways in which corrupt officials and their facilitators abuse the international 

financial system.2

50. Nonetheless, the U.S needs to address serious weaknesses identified by the FATF in 

entity transparency and the content and coverage of preventive measures that may make it 

easier for foreign corrupt officials to hide their proceeds in the U.S. More needs to be done to 

address the following weaknesses, some of which were identified by the FATF:

• The measures currently in place to prevent the abuse of companies are inadequate and the lack 

of readily accessible beneficial ownership information about companies means that the U.S. 

authorities are unlikely to undertake a resource-intensive investigation on behalf of a foreign 

counterpart unless the case is of a high priority. Fundamental improvements are needed to 

strengthen the legal framework to facilitate timely access to beneficial ownership information 

and thus speed up investigations and help prevent the abuse of legal entities for money 

laundering purposes. 

• The U.S. only complies partially with preventive requirements for regulated firms regarding the 

identification and verification of beneficial ownership for customers and politically exposed 

persons (PEPs).

3 However, in practice, many banks do apply requirements regarding PEPs more 

broadly than they are obliged to do, due in large part to supervisory expectations regarding 

PEPs set out by federal banking supervisors. Beneficial ownership information is not collected in 

all cases and the definition of beneficial ownership does not comply with the FATF standard. 

Nonetheless, in 2018, the U.S. partially addressed its deficiency regarding beneficial ownership 

when it brought in a new requirement for major regulated firms (such as banks, securities firms, 

and futures firms) to obtain beneficial ownership information that the authorities believe meets 

the FATF definition when corporations, but not other customer types, open new accounts.

• Major improvements are needed to make lawyers, accountants, and trust and company service 

providers subject to customer due diligence and suspicious transaction reporting obligations

even though some ML/TF risks faced by lawyers and accountants may be partially mitigated by 

cash reporting obligations, as well as by strong professional entry and continuing ethical 

requirements

• Action is also needed to address money laundering risks in high-end real estate, where realestate agents are not subject to comprehensive AML/CFT requirements and where non-bank 

mortgage lenders and originators have limited awareness of obligations, especially with regard 

 

2 See, the Treasury Financial Crimes and Enforcement Network’s June 2018 Advisory on Human Rights Abuses 

Enabled by Corrupt Senior Foreign Political Figures and their Financial Facilitators as well as e.g., FIN-2019-A002, 

“Updated Advisory on Widespread Public Corruption in Venezuela,” May 3, 2019; FIN-2018-A005, “Advisory to 

Financial Institutions on the Risk of Proceeds of Corruption from Nicaragua,” October 4, 2018; FIN-2017-A004, 

“Advisory to Financial Institutions on Political Corruption Risks in South Sudan,” September 6, 2017.

3 The main regulatory requirement is for covered financial institutions to conduct enhanced due diligence when 

opening private bank accounts (which must contain more that $1 million) for foreign PEPs. 
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38 INTERNATIONAL MONETARY FUND

to politically exposed persons. The use of Geographic Targeting Orders issued by Treasury’s 

Financial Crimes and Enforcement Network (to collect information for high-end purchases by 

legal entities without financing) could be used to inform further action to address these risks.

Authorities’ Views

51. The authorities recognized the importance of addressing the issue of corruption from 

all angles and welcomed the opportunity to discuss efforts to prevent foreign public officials 

from concealing the proceeds of corruption in the U.S. economy. They emphasized U.S. 

government efforts, including prosecutorial efforts as well as the use of sanctions designations and 

corruption-related advisories to communicate corruption-related risks and obligations to financial 

institutions, governments and non-governmental organizations. They acknowledged shortcomings 

regarding the collection of beneficial ownership information at the time of company formation and 

expressed their commitment to working with Congress on potential legislative solutions to address 

this gap.

STAFF APPRAISAL

52. The U.S. economy is in the longest expansion in recorded history. Unemployment is at 

levels not seen since the late 1960s, real wages are rising, and inflationary pressures remain 

subdued. Economic activity, while still growing above potential, is expected to slow to around 

2.6 percent this year and 1.9 percent in 2020.

53. Despite these positive macroeconomic outcomes, the benefits from this decade-long 

expansion have not been shared as widely as they could. A broader set of social indicators shows 

a troubling picture. Average life expectancy is falling, income and wealth polarization have 

increased, poverty has fallen but remains higher than in other advanced economies, social mobility 

has steadily eroded, and education and health outcomes are discouraging.

54. The financial system appears healthy but medium-term risks to financial stability are 

rising. More accommodative guidance by global central banks has supported a broad-based 

increase in asset prices and a compression in the market pricing of volatility. At the same time, 

vulnerabilities in leveraged corporates and, potentially, in the nonbank system are elevated by 

historical standards. There has been little institutional response to counter these growing risks. 

55. An abrupt reversal of the recent supportive financial market conditions represents a 

material downside risk to the U.S., with spillover implications for other economies. A sudden 

tightening of financial conditions could interact with high levels of corporate and public debt, 

creating a feedback loop between financial conditions and real activity, with negative implications 

for financial stability. This would undoubtedly have negative outward spillovers for non-U.S. 

corporates, sovereigns and financial institutions, particularly those with significant leverage or 

rollover needs in U.S. dollars.
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INTERNATIONAL MONETARY FUND 39

56. The U.S. public debt is on an unsustainable path. Policy adjustments are needed to lower

the fiscal deficit and put the public debt on a gradual downward path over the medium-term. There 

are a range of possible policy options, but any successful package will likely require steps to address 

the expected increases in entitlement spending on health and social security, to raise indirect taxes, 

and to institute a federal carbon tax. 

57. Further increases in the federal funds rate should be deferred until there are greater 

signs of wage or price inflation than are currently evident. Faced with falling inflation, anchored 

inflation expectations, a flat trade-off between inflation and slack, and continued uncertainties 

around the U.S. and global outlook, monetary policy has appropriately paused. This gives 

policymakers time to gauge the balance of risks to both inflation and employment outcomes and to 

build a clearer picture of whether further adjustments in the federal funds rate are warranted. 

58. Providing greater clarity, and a more holistic picture, of the expected evolution of the 

operating framework for monetary policy would be valuable. Operational changes could involve 

introducing a standing repo facility (to help cap spikes in money market rates); moving away from 

the federal funds rate as the operating target; and returning to a point target for the policy rate 

(rather than the current target range). 

59. For the global economy to function well, it needs to be able to rely on a more open, 

more stable, and more transparent, rules-based international trade system. The U.S. and its 

trading partners should work constructively to better address distortions in the trading system that 

are partly rooted in the system’s inability to adapt to long-term changes in the international 

environment. It is especially important that the trade tensions between the U.S. and China—which 

represent a threat to the global outlook and create important negative spillovers to other 

countries—are quickly resolved through a comprehensive agreement that strengthens the 

international system.

60. The external position is judged to be moderately weaker than implied by mediumterm fundamentals and desirable policies. The current account deficit is expected to rise modestly 

over the medium-term, moving it further away from the estimated current account norm. The real 

effective exchange rate remains somewhat overvalued. As highlighted in the April 2019 World 

Economic Outlook, tariff measures are likely to be ineffective at containing bilateral trade deficits 

and will be damaging to the U.S. and to global macroeconomic outturns. Instead, the U.S. external 

imbalance will need to be addressed through fiscal adjustment and supply side reforms that 

improve productivity and competitiveness.

61. The U.S. should address serious weaknesses in entity transparency and the content and 

coverage of preventive measures that may make it easier for foreign corrupt officials to hide 

their proceeds in the U.S. The U.S. needs to do more to ensure law enforcement agencies have 

timely access to beneficial ownership information (to speed up investigations and help prevent the 

abuse of legal entities for money laundering purposes). Requirements should be strengthened for 

regulated firms regarding the identification and verification of beneficial ownership for customers 

and politically exposed persons. Improvements are needed to make lawyers, accountants, and trust 
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40 INTERNATIONAL MONETARY FUND

and company service providers subject to customer due diligence and suspicious transaction 

reporting obligations. Finally, there is a need to address money laundering risks in high-end real 

estate (where real-estate agents are not subject to comprehensive AML/CFT requirements and 

where non-bank mortgage lenders and originators have limited awareness of obligations, especially 

with regard to politically exposed persons).

62. 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

(Percentage change from previous period, unless otherwise indicated)

2018 2019 2020 2021 2022 2023 2024

National production and income

Real GDP 2.9 2.6 1.9 1.8 1.7 1.6 1.6

Real GDP (q4/q4) 3.0 2.3 1.9 1.7 1.7 1.6 1.6

Net exports 1/ -0.2 0.2 -0.2 -0.2 0.0 0.0 0.0

Total domestic demand 3.0 2.4 2.0 1.9 1.6 1.5 1.5

Final domestic demand 2.9 2.2 2.1 1.9 1.6 1.5 1.5

Private final consumption 2.6 2.3 2.2 1.9 1.8 1.6 1.6

Public consumption expenditure 1.2 0.6 1.0 1.1 0.8 0.7 0.6

Gross fixed domestic investment 4.8 2.7 2.4 2.4 1.5 1.7 1.8

Private fixed investment 5.2 3.1 2.9 2.4 1.6 1.8 2.0

Public fixed investment 2.6 0.6 -0.1 2.0 0.7 1.1 0.1

Change in private inventories 1/ 0.1 0.2 0.0 0.0 0.0 0.0 0.0

Nominal GDP 5.2 4.3 4.0 3.8 3.7 3.6 3.7

Personal saving rate (% of disposable income) 6.8 6.5 6.4 6.3 6.2 6.2 6.2

Private investment rate (% of GDP) 17.8 18.1 18.1 18.2 18.2 18.2 18.3

Unemployment and potential output

Unemployment rate 3.9 3.6 3.5 3.6 3.7 3.8 3.8

Labor force participation rate 62.9 63.0 62.9 62.7 62.5 62.3 62.1

Potential GDP 2.0 2.0 1.9 1.8 1.7 1.7 1.7

Output gap (% of potential GDP) 1.1 1.7 1.7 1.6 1.6 1.5 1.4

Inflation

CPI inflation (q4/q4) 2.2 2.4 2.6 2.3 2.2 2.2 2.2

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

PCE Inflation (q4/q4) 1.9 2.1 2.2 2.0 1.9 1.9 2.0

Core PCE Inflation (q4/q4) 1.9 1.8 2.1 2.1 2.0 2.0 2.0

GDP deflator 2.3 1.6 2.1 2.0 2.0 2.0 2.0

Government finances

Federal balance (% of GDP) 2/ -3.9 -4.2 -4.0 -4.0 -4.3 -4.1 -3.8

Federal debt held by the public (% of GDP) 77.8 78.7 79.6 80.6 82.0 83.3 84.2

General government budget balance (% of GDP) 2/ -5.3 -4.9 -4.6 -4.6 -4.9 -4.5 -4.2

General government gross debt (% of GDP) 106.8 107.9 108.8 109.9 111.3 112.4 113.2

Interest rates (percent; period average)

Fed funds rate 1.8 2.4 2.6 2.9 2.9 2.9 2.8

Three-month Treasury bill rate 2.0 2.4 2.6 2.8 2.8 2.8 2.7

Ten-year government bond rate 2.9 2.7 2.9 3.1 3.2 3.2 3.2

Balance of payments

Current account balance (% of GDP) -2.3 -2.1 -2.5 -2.7 -2.6 -2.5 -2.4

Merchandise trade balance (% of GDP) -4.3 -4.2 -4.5 -4.6 -4.6 -4.6 -4.5

Export volume (NIPA basis, goods) 4.7 3.5 3.1 3.9 4.7 4.3 4.4

Import volume (NIPA basis, goods) 4.8 1.9 4.1 3.9 3.2 3.2 3.1

Net international investment position (% of GDP) -47.4 -47.5 -48.2 -49.1 -50.0 -50.7 -51.4

Saving and investment (% of GDP)

Gross national saving 19.0 19.3 18.7 18.7 18.8 18.9 19.0

General government -3.2 -2.7 -2.5 -2.5 -2.7 -2.4 -2.2

Private 22.2 22.0 21.3 21.2 21.5 21.3 21.3

Personal 5.1 4.9 4.9 4.8 4.8 4.8 4.7

Business 17.1 17.1 16.4 16.4 16.7 16.5 16.5

Gross domestic investment 21.1 21.3 21.3 21.4 21.3 21.4 21.4

Private 17.8 18.1 18.1 18.2 18.2 18.2 18.3

Public 3.3 3.3 3.2 3.2 3.2 3.1 3.1

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

1/ Contribution to real GDP growth, percentage points.

2/ Includes staff's adjustments for one-off items, including costs of financial sector support.

Projections
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42 INTERNATIONAL MONETARY FUND

Table 2. United States: Balance of Payments

(Annual percent change unless otherwise indicated)

2018 2019 2020 2021 2022 2023 2024

Real exports growth

Goods and services 4.0 3.7 2.7 2.9 3.9 3.7 3.8

Goods 4.7 3.5 3.1 3.9 4.7 4.3 4.4

Services 2.6 4.1 1.9 1.0 2.4 2.7 2.8

Real imports growth

Goods and services 4.5 1.9 3.6 3.5 2.8 2.8 2.8

Goods 4.8 1.9 4.1 3.9 3.2 3.2 3.1

Nonpetroleum goods 5.8 3.0 5.1 4.5 3.7 3.5 3.5

Petroleum goods -4.8 -9.6 -7.9 -4.4 -5.0 -2.5 -4.5

Services 3.3 2.0 1.1 1.7 1.2 1.2 1.4

Net exports (contribution to real GDP growth) -0.2 0.2 -0.2 -0.2 0.0 0.0 0.0

Nominal exports

Goods and services 12.4 12.1 12.0 11.9 12.0 12.1 12.2

Nominal imports

Goods and services 15.4 15.0 15.0 15.1 15.1 15.1 15.2

Current account

Current account balance -2.3 -2.1 -2.5 -2.7 -2.6 -2.5 -2.4

Balance on trade in goods and services -3.0 -2.8 -3.1 -3.2 -3.1 -3.1 -2.9

Balance on income 0.7 0.8 0.5 0.5 0.5 0.5 0.5

Capital and Financial Account

Capital account balance 0.0 0.0 0.0 0.1 0.0 0.0 0.0

Financial account balance -2.3 -2.0 -2.5 -2.6 -2.6 -2.5 -2.4

Direct investment, net -1.8 -0.8 -0.8 -0.9 -0.9 -0.9 -0.9

Potrfolio investment, net -0.2 -1.0 -1.0 -0.6 -0.6 -0.8 -0.6

Financial derivatives, net 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other investment, net -0.3 -0.3 -0.7 -1.1 -1.0 -0.8 -0.9

Reserve assets, net 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Errors and Omissions 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net International Investment Position -47.4 -47.5 -48.2 -49.1 -50.0 -50.7 -51.4

Direct investment, net -4.8 -5.5 -6.1 -6.8 -7.5 -8.1 -8.7

Potrfolio investment, net -36.4 -35.9 -35.5 -34.8 -34.3 -33.9 -33.4

Financial derivatives, net 0.2 0.2 0.2 0.2 0.2 0.2 0.2

Other investment, net -8.5 -8.5 -8.9 -9.7 -10.3 -10.7 -11.2

Reserve assets, net 2.2 2.1 2.0 1.9 1.9 1.8 1.7

Memorandum items

Current account balance (US$ billions) -478 -445 -565 -616 -622 -626 -618

Non-oil trade balance (% of GDP) -2.7 -2.7 -3.1 -3.4 -3.3 -3.3 -3.2

Foreign real GDP growth 2.5 2.2 2.6 2.6 2.6 2.6 2.6

U.S. real GDP growth 2.9 2.6 1.9 1.8 1.7 1.6 1.6

U.S. real total domestic demand growth 3.0 2.4 2.0 1.9 1.6 1.5 1.5

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

Projections
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Table 3. United States: Federal and General Government Finances

(Percent of GDP)

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Federal government

Revenue 16.5 16.7 16.7 16.8 16.9 17.1 17.3 17.4 17.9 18.3 18.2

Expenditure 20.3 20.9 20.7 20.8 21.2 21.2 21.2 21.6 21.9 22.1 22.5

Non-interest 18.7 19.2 18.8 18.8 19.1 19.1 19.0 19.3 19.5 19.6 19.8

Interest 1.6 1.8 1.9 2.0 2.1 2.1 2.2 2.3 2.4 2.5 2.6

Budget balance 1/ -3.9 -4.2 -4.0 -4.0 -4.3 -4.1 -3.8 -4.2 -4.0 -3.9 -4.2

Primary balance 2/ -2.3 -2.5 -2.0 -2.0 -2.3 -2.0 -1.6 -1.9 -1.6 -1.3 -1.6

Primary structural balance 3/ 4/ -2.4 -2.8 -2.4 -2.3 -2.6 -2.3 -1.9 -2.2 -1.9 -1.6 -1.9

 Change -0.3 -0.4 0.4 0.1 -0.3 0.3 0.4 -0.2 0.3 0.3 -0.3

Federal debt held by the public 77.8 78.7 79.6 80.6 82.0 83.3 84.2 85.3 86.2 87.0 88.1

General government

Revenue 29.6 30.7 31.0 31.1 31.2 31.5 31.7 32.0 32.7 32.9 32.7

Expenditure 34.9 35.6 35.6 35.6 36.1 36.0 36.0 36.4 36.7 36.9 36.8

 Net interest 2.4 2.1 2.0 2.0 2.1 2.2 2.2 2.2 2.4 2.4 2.4

Net lending 1/ -5.3 -4.9 -4.6 -4.6 -4.9 -4.5 -4.2 -4.4 -4.0 -4.0 -4.1

Primary balance 2/ -3.0 -2.9 -2.7 -2.5 -2.7 -2.4 -2.0 -2.1 -1.6 -1.6 -1.6

Primary structural balance 3/ 4/ -3.0 -3.5 -3.3 -3.1 -3.4 -2.9 -2.6 -2.6 -2.2 -2.0 -2.2

 Change -0.5 -0.4 0.2 0.2 -0.2 0.4 0.3 -0.1 0.4 0.3 -0.2

Gross debt 106.8 107.9 108.8 109.9 111.3 112.4 113.2 114.1 114.6 115.0 115.5

incl. unfunded pension liab. 140.5 138.3 138.9 139.5 140.6 141.4 141.8 142.3 142.5 142.6 142.7

Memorandum items

Federal government deficit

President's latest budget -3.8 -5.1 -4.9 -4.5 -4.2 -3.5 -2.6 -2.2 -1.9 -1.6 -1.5

CBO budget assessment -3.9 -4.2 -4.4 -4.0 -4.5 -4.1 -3.5 -3.5 -3.4 -3.5 -3.9

CBO baseline (current law) -3.9 -4.2 -4.0 -4.2 -4.7 -4.5 -4.2 -4.5 -4.3 -4.0 -4.7

Federal government debt

President's latest budget 77.8 79.5 80.7 81.6 82.1 81.9 80.7 79.3 77.7 75.9 74.0

CBO budget assessment 77.8 78.2 79.8 81.2 83.1 84.3 84.8 85.3 85.8 86.4 87.2

CBO baseline (current law) 77.8 78.2 79.5 81.0 83.0 84.8 85.9 87.2 88.5 89.4 90.8

Sources: Congressional Budget Office; Office of Management and Budget; and IMF staff estimates.

Note: Fiscal projections are based 

on the June 2017 Congressional 

Budget Office baseline adjusted 

for the IMF staff’s policy and 

macroeconomic assumptions. 

Projections incorporate the effects 

of tax reform (Tax Cuts and Jobs 

Act, signed into law end-2017) as 

well as the Bipartisan Budget Act 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.

Projections
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Table 4. United States: Core Financial Soundness Indicators for Deposit Takers

(Percent unless stated otherwise)

2011 2012 2013 2014 2015 2016 2017 2018

Regulatory capital to risk-weighted assets 14.7 14.5 14.4 14.4 14.1 14.2 14.5 14.7

Regulatory tier 1 capital to risk-weighted assets 12.6 12.7 12.8 13.1 13.1 13.2 13.5 13.7

Non-performing loans net of provisions to capital 17.6 15.7 11.7 8.8 7.2 6.6 5.7 4.8

Non-performing loans to total gross loans 3.8 3.3 2.5 1.9 1.5 1.3 1.1 0.9

Sectoral distribution of total loans: residents 95.6 95.5 95.2 95.6 95.8 96.1 96.0 96.1

Sectoral distribution of total loans: deposit-takers 6.0 6.0 5.0 4.1 3.6 3.8 3.9 4.3

Sectoral distribution of total loans: other financial corporations 3.8 4.4 5.2 6.2 6.7 6.7 6.9 7.1

Sectoral distribution of total loans: general government 0.9 1.1 1.2 1.3 1.4 1.5 1.6 1.5

Sectoral distribution of total loans: nonfinancial corporations 31.8 32.1 33.3 34.2 35.0 35.5 35.4 35.5

Sectoral distribution of total loans: other domestic sectors 53.1 51.9 50.5 49.8 49.1 48.5 48.2 47.7

Sectoral distribution of total loans: nonresidents 4.4 4.5 4.8 4.4 4.2 3.9 4.0 3.9

Return on assets 0.3 0.3 0.4 0.3 0.4 0.4 0.3 0.4

Return on equity 2.3 2.7 3.3 2.8 3.0 3.2 2.9 3.7

Interest margin to gross income 65.2 60.8 63.5 63.7 63.4 65.1 67.0 67.1

Non-interest expenses to gross income 64.5 63.6 61.7 64.7 60.7 59.6 61.6 56.4

Liquid assets to total assets (liquid asset ratio) 12.7 13.4 14.5 14.5 13.2 12.8 13.2 12.9

Liquid assets to short term liabilities 66.1 74.1 88.3 90.0 91.2 98.2 97.7 91.3

Note: 2018 data is the 2018Q3 value.
United States Overall Assessment

Foreign asset 

and liability 

position and 

trajectory

2018 IIP (% GDP)

Background. The net international investment position (NIIP), which averaged about -33 percent during 2012-14, is estimated 

to have decreased further from -39.6 percent of GDP in 2017 to -43.4 percent of GDP in 2018 (before accounting for valuation 

effects, which amounted to +2.9 percent of GDP through Q3:2018). Under staff’s baseline scenario, the negative NIIP is 

projected to expand by 4 percent of GDP over the next five years, on the back of sustained current account deficits.

Assessment. Financial stability risks from rising negative NIIP could surface in the form of an unexpected decline in foreign 

demand for US fixed income securities, which are the main component of the country’s external liabilities. This risk, which could 

materialize due to a failure to re-establish fiscal sustainability, remains moderate given the dominant status of the US dollar as a 

reserve currency. Around 64 percent of US assets are in the form of FDI and portfolio equity claims.

Overall Assessment:

The US external position was 

moderately weaker than implied by 

medium-term fundamentals and 

desirable policies in 2018.

A strong economy and the fiscal 

stimulus imply a sustained CA 

deficit in the coming years, moving 

it further from the level justified by 

medium term fundamentals and 

desirable policies. The effects of 

actual and prospective changes in 

trade, taxation, and labor-market 

(including e.g. immigration) 

policies continue to add 

uncertainty to the assessment.

Potential policy responses:

Fiscal consolidation, aiming at a 

medium-term general government 

primary surplus of about 1 percent 

of GDP (a federal government 

primary surplus of about 13⁄4 

percent of GDP) would be 

appropriate to put the debt-GDP 

ratio on a downward path and 

address external imbalances. 

Structural policies to increase 

competitiveness, while maintaining 

full employment, include: 

upgrading infrastructure, 

enhancing schooling, training and 

mobility of workers, and 

encouraging labor force 

participation. The recentlyimposed tariff barriers should be 

rolled back, as trade and 

investment disagreements with 

other countries should be resolved 

without resorting to the imposition 

of tariff and nontariff barriers.

NIIP -44.4 Gross Assets 133.4 Debt Assets 38.3 Gross Liab. 177.7 Debt Liab. 85.0

Current 

account 

CA Assessment 2018

Background. The US CA deficit was unchanged between 2017 and 2018 at 2.3 percent of GDP, compared with a deficit of 2.1 

percent of GDP in 2014. The deterioration was led by the non-oil balance, which reached a deficit of 2.8 percent of GDP in 2018 

compared with a deficit of 1.7 percent of GDP in 2014. The larger output gap did not result in an increase in the CA deficit in 

2018 as these effects were offset by an improving oil balance and stronger income account, and because of weaker-thananticipated (import-intensive) investment. However, trade-balance outturns have been difficult to interpret as a result of shifts in 

the timing of exports and imports due to tariffs. Going forward, the US CA deficit is expected to rise to 2.6 percent of GDP by 

2020, as US demand rises further above potential output, partly driven by the projected fiscal easing.

Assessment. The EBA model estimates a cyclically adjusted CA of -2.0 percent of GDP, and a cyclically adjusted CA norm of -1.0 

percent of GDP. The cyclically adjusted CA gap is -1.0 percent of GDP for 2018, reflecting policy gaps (-0.5 percent of GDP, of 

which -0.4 percent corresponds to fiscal policy) and an unidentified residual (about -0.5 percent of GDP). The External 

Sustainability Approach estimates a CA gap of -0.9 percent of GDP. On balance, and taking into account recent increases in oil 

production, staff assesses the 2018 cyclically adjusted CA to be -0.7 to -1.7 percent of GDP lower than the level implied by 

fundamentals and desirable policies. 1/

Actual CA -2.3 Cycl. Adj. CA -2.0 EBA CA Norm -1.0 EBA CA gap -1.0 Staff Adj. -0.2 Staff CA gap -1.2

Real exchange 

rate

Background. After depreciating by about 7 percent in 2017 (eop), the real effective exchange rate (REER) appreciated by about 

4 percent in 2018 (eop), yet as of end-2018 was about [18] percent higher than the average for 2014. Through [February] 2019, 

the USD appreciated [1.6] percent in real terms relative to the 2018 average.

Assessment. Indirect estimates of the REER (based on the EBA current account assessment) imply that the exchange rate was 

overvalued by 8 percent in 2018 (applying an estimated elasticity of 0.12). The EBA REER index model suggests an overvaluation 

of [8.2] percent, the EBA REER level model suggests an overvaluation of [12.1] percent, and the External Sustainability Approach 

estimates a REER overvaluation of 10 percent. Considering all the estimates and their uncertainties, staff assesses the 2018 

average REER to be somewhat overvalued, in the 6-12 percent range.

Capital and 

financial 

accounts: 

flows and policy 

measures

Background. Net financial inflows were about 2.3 percent of GDP in 2018, compared with 1.6 percent of GDP in 2017. Net 

portfolio investments and other investments decreased by 0.8 and 0.6 percent of GDP, respectively, in 2018 and were offset by

stronger net direct investments.

Assessment. The United States has an open capital account. Vulnerabilities are limited by the dollar’s status as a reserve 

currency with foreign demand for US Treasury securities supported by the status of the dollar as a reserve currency, and, 

possibly, by safe-haven flows.

FX intervention 

and reserves 

level

Assessment. The dollar has the status of a global reserve currency. Reserves held by the United States are typically low

relative to standard metrics. The currency is free floating.

Technical 

Background 

Notes

1/ Small adjustor reflects correction to the terms of trade contribution which does not include recent increases in oil production.

UNITED STATES

45 INTERNATIONAL MONETARY FUND

INTERNATIONAL MONETARY FUND 45

Appendix I. External Sector Assessment

INDIVIDUAL ECONOMY ASSESSMENTS
UNITED STATES

46 INTERNATIONAL MONETARY FUND

Appendix II. Risk Assessment Matrix1

Nature/Source of Risk

Overall Level of Concern

Medium-term Likelihood of Realization Expected Impact if Risk Materializes

Rising protectionism 

and retreat from 

multilateralism

High Medium

Escalating and sustained trade actions threaten the 

global trade system, as well as global and regional 

collaboration, and disrupt global value chains. 

Fraying consensus about the benefits of 

globalization could lead to economic 

fragmentation and undermine the global rulesbased order, with adverse effects on growth and 

stability.

Additional tariff and nontariff barriers and the 

threat of new actions reduce growth both 

directly and indirectly through confidence 

effects (increasing financial market volatility). 

A retreat from cross-border integration would 

have wide-ranging negative effects on trade, 

capital flows, growth, confidence, and global 

cooperation on financial regulation.

Weaker-than-expected 

growth in the U.S.

Medium High

As the current recovery matures and vulnerabilities 

build up, the risks of a sharper-than-expected 

slowdown increase. The proximate causes could be 

a fiscal contraction, accompanied by less monetary 

accommodation, associated with the eventual 

planned withdrawal of the tax stimulus or the 

partial non-renewal of expiring appropriations.

The output gap could close more abruptly, 

through a policy-induced recession which 

would have a negative impact on both the U.S. 

and the global economy.

Tightening in financial 

conditions / asset price 

volatility

Low Medium

Against the backdrop of less monetary 

accommodation and increasingly stretched 

valuations across asset classes, market expectations 

of tighter U.S. monetary policy (e.g., due to higherthan-expected inflation in the U.S) could lead to 

sudden, sharp increases in interest rates and 

associated tightening of financial conditions. 

Higher debt service and refinancing risks could 

stress leveraged firms, households, and vulnerable 

sovereigns.

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. A 10 percent sustained fall in house 

prices is estimated to reduce private 

consumption by about 1-1.5 percent. 

Weaker-than-expected

growth in Europe

High Low

In the euro area, weak foreign demand makes 

businesses delay investment, while faltering 

confidence reduces private consumption. Adverse 

financial market reaction to debt sustainability 

concerns further dampens growth. A disorderly 

Brexit could cause market disruption with negative 

spillovers. Disregard for the common fiscal rules 

and rising sovereign yields for high-debt countries 

would test the euro area policy framework, with 

adverse impact on confidence and growth. 

A 1-percentage point decline in growth in 

advanced and emerging economies could 

subtract about 0.1 percentage points of U.S. 

GDP after two years. If disruption feeds into 

global financial markets or risk aversion the 

effect would be larger.

Weaker-than-expected 

growth in China

Medium Low

An intensification of trade tensions and/or a 

housing market downturn prompt a slowdown, 

which is not fully offset by policy easing. 

Deleveraging is delayed and financial stresses, 

including capital outflow and exchange rate 

pressures, emerge, and raises the probability of a 

subsequently larger disruptive adjustment.

A 1-percentage point decline in growth in 

advanced and emerging economies could 

subtract about 0.1 percentage points of U.S. 

GDP after two years. If disruption feeds into 

global financial markets or risk aversion the 

effect would be larger.

1 The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to 

materialize in the view of IMF staff). The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline 

(“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a 

probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the 

time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. “Short term (ST)” and 

“medium term (MT)” are meant to indicate that the risk could materialize within 1 year and 3 years, respectively.
UNITED STATES

INTERNATIONAL MONETARY FUND 47

Large swings in energy 

prices

Medium Low / Medium

Risks to prices are broadly balanced, reflecting 

offsetting—but large and

uncertain—supply and demand shocks. Uncertainty 

surrounding these shocks translates to elevated 

price volatility, adversely affecting investment in

the energy sector.

With the level of U.S. oil investment already 

cut in half over the past few years, renewed 

price declines are unlikely to have strong 

effects on aggregate U.S. growth. However, 

solvency risks in the oil sector would rise.

Cyber-attacks

Medium High

Cyber-attacks on interconnected financial systems 

and broader private and public institutions that 

trigger systemic financial instability or widely 

disrupt socio-economic activities.

Shock to critical infrastructure causes delay, 

denial, disruption, breakdown or loss of 

services, affecting many institutions that rely 

on the attacked hub. This could also lead to a 

loss of confidence in the functioning of the 

financial system. 
UNITED STATES

48 INTERNATIONAL MONETARY FUND

Appendix III. Public Debt Sustainability Analysis

The U.S. budget deficit started rising in 2016, following a decline during 2010-15, and the U.S. public 

debt-to-GDP ratio is on an unsustainable path. Under the baseline scenario, public debt is projected to 

rise over the medium term, as age-related spending pressures on entitlement programs assert 

themselves and interest rates normalize. In addition, tax cuts and discretionary spending increases 

enacted since late-2017 are adding pressure on U.S. public finances. Gross financing needs are large, 

albeit manageable given the global reserve currency status of the U.S. dollar. A credible medium-term 

fiscal adjustment featuring reprioritization of budget programs and revenue-gaining tax reform is 

needed to put public debt on a downward path.

1. Background. Significant fiscal consolidation measures were legislated in 2011–13 to tackle 

the high public debt ratio, which had doubled at the federal government level since 2007 due to the 

Great Recession and associated fiscal measures. However, the Bipartisan Budget Acts of 2013, 2015, 

and 2018 reversed some of the cuts scheduled to take place since FY2014, with only partial offsets

from savings generated through mandatory spending cuts in later years. In addition, the Tax Act of 

2015 and the Tax Cuts and Jobs Act of 2017, extended several tax cuts while introducing new ones. 

As a result, sustained fiscal deficits are projected for the medium to long term.

2. Baseline. The staff’s baseline is based on current laws. Under this baseline, public debt is 

projected to continue rising as age-related spending pressures on entitlement programs assert 

themselves and interest rates normalize. Federal debt held by the public is projected to increase 

from about 76 percent of GDP in 2018 to around 87 percent of GDP in 2028, with general 

government gross debt rising from about 106 percent of GDP to 111 percent of GDP during this 

period.

3. Adjustment scenario. The 2018 general 

government primary deficit was 2.6 percent of GDP. 

In staff’s view, gradually raising the primary general 

government surplus to around 1 percent of GDP (13⁄4 

percent of GDP for the federal government) would 

put the debt-to-GDP ratio firmly on a downward 

path over the medium term. The target primary 

surplus would have to be larger to bring the debt 

ratio closer to pre-crisis levels by 2030.

4. Debt servicing costs. The fiscal projections 

benefit from the current favorable interest rategrowth differential. Reflecting accommodative monetary policy and the safe-haven status of the 

United States, real interest rates have fallen well below GDP growth. Under staff’s baseline, the 

effective interest rate is projected to rise gradually from the current level of 2.8 percent and reach 

3.3 percent by 2027 (which is somewhat above its 2008–16 average level). Thus, real interest rates 

will become a substantial debt-creating flow over the medium-term. 

65

70

75

80

85

90

95

2018 2020 2022 2024 2026 2028

Federal Debt Held by the Public

(percent of GDP, fiscal year)

Baseline

Adjustment
UNITED STATES

INTERNATIONAL MONETARY FUND 49

5. Realism. Baseline economic assumptions and fiscal projections are generally within the error 

band observed for all countries. The projected modest fiscal adjustment is realistic—well within the 

median range of consolidation episodes observed across countries in 1990–2011.

6. Stress tests. The public debt dynamics are highly sensitive to growth and interest rate 

assumptions, primarily reflecting the fact that the U.S. public debt ratio already exceeds 100 percent 

of GDP. An increase of 200 basis points in the sovereign risk premium would raise the public debt 

ratio to about 120 percent of GDP by 2027, about 10 percentage points of GDP above the baseline. 

Similarly, were real GDP growth to be one standard deviation below the baseline, the public debt

ratio would increase by about 10 percentage points above the baseline. A scenario involving a 1 

percentage point of GDP larger fiscal deficit over the next two years would increase public debt ratio 

by about 5 percentage points above the baseline by 2027. A combined macro-fiscal shock could 

raise the public debt ratio to as high as 130 percent of GDP by 2027. An exchange rate shock does 

not have implications for debt sustainability in the United States given that all debt is denominated 

in local currency and the reserve currency status of the dollar.

7. Mitigating factors. The depth and liquidity of the U.S. Treasury market as well as its safehaven status represent a mitigating factor for the high external and gross financing requirements.
UNITED STATES

50 INTERNATIONAL MONETARY FUND

Appendix III. Figure 1. United States: Public DSA–Risk Assessment

United States

Source: IMF staff

4/ An average over the last 3 months, 21-Feb-19 through 22-May-19

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

1.3%

1 2

Not applicable 

400 for United States

600

1 2

251 bp

1 7

2 5

1 2

29%

Bond Spread over 

German Bonds

External Financing 

Requirement 

Annual Change in 

Short-Term Public 

Debt

Public Debt in 

Foreign Currency

(Basis points) 4/ (Percent of GDP) (Percent of total) (Percent of total)

6 0

8 0

100

120

140

160

2018 2020 2022 2024 2026 2028

Baseline Percentiles: 10th-25th 25th-75th 75th-90th

Symmetric Distribution

6 0

8 0

100

120

140

160

2018 2020 2022 2024 2026 2028

Restricted (Asymmetric) Distribution

no restriction on the growth rate shock

no restriction on the interest rate shock

3 is the max positive pb shock (percent GDP)

no restriction on the exchange rate shock

Restrictions on upside shocks:

3 0

4 5

1 2

26%

Public Debt Held 

by Non-Residents

(Percent of total)
UNITED STATES

INTERNATIONAL MONETARY FUND 51

Appendix III. Figure 2. United States: Public DSA–Realism of Baseline Assumptions

Source : IMF staff

1/ Plotted distribution includes all countries, percentile rank refers to all countries. Projections made in the spring WEO vintage of the preceding year

2/ Data cover annual obervations from 1990 to 2011 for advanced and emerging economies with debt greater than 60 percent of GDP. Percent of sample on vertical axis

United States Public DSA–Realism of Baseline Assumptions

Forecast Track Record, versus all countries

Assessing the Realism of Projected Fiscal Adjustment Boom-Bust Analysis

-10

- 8

- 6

- 4

- 2

0

2

4

6

-10

- 8

- 6

- 4

- 2

0

2

4

6

2009 2010 2011 2012 2013 2014 2015 2016 2017

Year 2/

Real GDP Growth

Interquartile range (25-75) Median

-0.36 Has a percentile rank of: 49%

United States median forecast error, 2009-2017:

Distribution of forecast errors: 1 /

(Percent, actual-projection)

-14

-12

-10

- 8

- 6

- 4

- 2

0

2

4

-10

- 8

- 6

- 4

- 2

0

2

4

2009 2010 2011 2012 2013 2014 2015 2016 2017

Year 2/

Primary Balance

Interquartile range (25-75) Median

-0.38 Has a percentile rank of: 54%

United States median forecast error, 2009-2017:

Distribution of forecast errors: 1 /

(Percent of GDP, actual-projection)

- 8

- 6

- 4

- 2

0

2

4

6

8

1 0

- 8

- 6

- 4

- 2

0

2

4

6

2009 2010 2011 2012 2013 2014 2015 2016 2017

Year 2/

Inflation (Deflator)

Interquartile range (25-75) Median

-0.02

Has a percentile rank of: 69%

United States median forecast error, 2009-2017:

(Percent, actual-projection)

Distribution of forecast errors: 1 / pessimistic optimistic

-6

-4

-2

0

2

4

6

8

t-5 t-4 t-3 t-2 t-1 t t+1 t+2 t+3 t+4 t+5

Real GDP growth

(Percent)

Not applicable 

for United States

0

2

4

6

8

1 0

1 2

1 4

0

2

4

6

8

1 0

1 2

1 4 Less-4-3-2-10

12345678

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-4-3-2-10

12345678

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

52 INTERNATIONAL MONETARY FUND

Appendix III. Figure 3. United States: Public DSA–Baseline Scenario

As of May 22, 2019

2008–2016 2/ 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Sovereign Spreads

Nominal gross public debt 97.7 106.2 105.8 107.9 108.9 110.0 111.4 112.6 113.3 114.1 114.5 114.8 115.2 Spread (bp) 3/ 247

Public gross financing needs 39.1 36.2 38.1 32.1 32.8 32.9 32.4 33.5 32.7 33.3 32.8 33.3 33.7 CDS (bp) 16

Real GDP growth (percent) 1.4 2.2 2.9 2.6 1.9 1.8 1.7 1.6 1.6 1.7 1.7 1.7 1.7 Ratings Foreign Local

Inflation (GDP deflator, percent) 1.5 1.9 2.3 1.6 2.1 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Moody's Aaa Aaa

Nominal GDP growth (percent) 2.9 4.2 5.2 4.3 4.0 3.8 3.7 3.6 3.7 3.8 3.8 3.8 3.8 S&Ps AA+ AA+

Effective interest rate (percent) 4/ 3.0 2.5 2.8 2.2 2.3 2.5 2.7 2.9 3.0 3.1 3.1 3.2 3.2 Fitch AAA AAA

2008–2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Cumulative

Change in gross public sector debt 4.7 -0.6 -0.4 2.2 1.0 1.0 1.4 1.2 0.7 0.8 0.4 0.3 0.4 9.4

Identified debt-creating flows 5.0 0.7 0.6 0.8 0.9 1.1 1.7 1.5 1.3 1.4 0.9 0.9 1.0 11.6

Primary deficit 5.2 2.4 3.0 2.9 2.7 2.5 2.7 2.4 2.0 2.1 1.6 1.6 1.6 22.2

Primary (noninterest) revenue and grants 29.6 30.3 29.1 30.2 30.5 30.6 30.7 31.0 31.2 31.4 32.1 32.3 32.1 312.0

Primary (noninterest) expenditure 34.8 32.7 32.1 33.0 33.2 33.1 33.4 33.3 33.3 33.6 33.8 33.8 33.7 334.1

Automatic debt dynamics 5/ -0.2 -1.8 -2.4 -2.1 -1.8 -1.4 -1.1 -0.8 -0.7 -0.8 -0.7 -0.6 -0.6 -10.6

Interest rate/growth differential 6/ -0.2 -1.8 -2.4 -2.1 -1.8 -1.4 -1.1 -0.8 -0.7 -0.8 -0.7 -0.6 -0.6 -10.6

Of which: real interest rate 1.2 0.5 0.5 0.6 0.2 0.4 0.7 0.9 1.0 1.1 1.2 1.2 1.3 8.6

Of which: real GDP growth -1.4 -2.3 -2.9 -2.7 -2.0 -1.8 -1.8 -1.7 -1.7 -1.9 -1.9 -1.9 -1.9 -19.2

Exchange rate depreciation 7/ 0.0 0.0 0.0 ... ... ... ... ... ... ... ... ... ... ...

Other identified debt-creating flows 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Net privatization proceeds 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Contingent liabilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other liabilities (bank recap. and PSI sweetner) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Residual, including asset changes 8/ -0.3 -1.3 -1.0 1.4 0.1 -0.1 -0.3 -0.4 -0.6 -0.6 -0.5 -0.6 -0.6 -2.1

Source: IMF staff

1/ Public sector is defined as general government

2/ Based on available data

3/ Bond Spread over German Bonds

4/ Defined as interest payments divided by debt stock at the end of previous year

6/ The real interest rate contribution is derived from the denominator in footnote 4 as r - π (1+g) and the real growth contribution as -g

7/ The exchange rate contribution is derived from the numerator in footnote 2/ as ae(1+r).

8/ For projections, this line includes exchange rate changes during the projection period. Also includes ESM capital contribution, arrears clearance, SMP and ANFA income, and the effect of deferred interest

9/ Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year

5/ Derived as [(r - p(1+g) - g + ae(1+r)]/(1+g+p+gp)) times previous period debt ratio, with r = interest rate; p = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange 

rate depreciation 

Debt, Economic and Market Indicators 1/

Debt-stabilizing 

primary balance 9/

-0.6

United States Public DSA–Baseline Scenario

(percent of GDP, unless otherwise indicated)

Actual

Contribution to Changes in Public Debt

Actual Projections

Projections

-5

0

5

10

15

20

-5

0

5

10

15

20

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

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

INTERNATIONAL MONETARY FUND 53

Appendix III. Figure 4. United States: Public DSA–Composition of Public Debt and 

Alternative Scenarios

Baseline Historical Constant Primary Balance

Baseline scenario 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Historical scenario 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Real GDP growth 2.6 1.9 1.8 1.7 1.6 1.6 1.7 1.7 1.7 1.7 Real GDP growth 2.6 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8 1.8

Inflation 1.6 2.1 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Inflation 1.6 2.1 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0

Primary balance -2.9 -2.7 -2.5 -2.7 -2.4 -2.0 -2.1 -1.6 -1.6 -1.6 Primary balance -2.9 -4.8 -4.8 -4.8 -4.8 -4.8 -4.8 -4.8 -4.8 -4.8

Effective interest rate 2.2 2.3 2.5 2.7 2.9 3.0 3.1 3.1 3.2 3.2 Effective interest rate 2.2 2.4 2.7 3.0 3.2 3.4 3.5 3.6 3.7 3.7

Constant primary balance scenario

Real GDP growth 2.6 1.9 1.8 1.7 1.6 1.6 1.7 1.7 1.7 1.7

Inflation 1.6 2.1 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0

Primary balance -2.9 -2.9 -2.9 -2.9 -2.9 -2.9 -2.9 -2.9 -2.9 -2.9

Effective interest rate 2.2 2.4 2.6 2.8 2.9 3.0 3.1 3.2 3.2 3.3

Source: IMF staff

United States Public DSA–Composition of Public Debt and Alternative Scenarios

(Percent)

Composition of Public Debt

Alternative Scenarios

Underlying Assumptions

0

20

40

60

80

100

120

140

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028

By Maturity 

(Percent of GDP)

Medium and long-term

Short-term

projection

0

25

50

75

100

125

150

175

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Gross Nominal Public Debt

(Percent of GDP)

0

20

40

60

80

100

120

140

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028

By Currency

(Percent of GDP)

Local currency-denominated

Foreign currency-denominated projection

0

5

10

15

20

25

30

35

40

45

50

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Public Gross Financing Needs

(Percent of GDP)
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54 INTERNATIONAL MONETARY FUND

Appendix III. Figure 5. United States: Public DSA–Stress Tests

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Primary Balance Shock Real GDP Growth Shock

Real GDP growth 2.6 1.9 1.8 1.7 1.6 1.6 1.7 1.8 1.7 1.7 Real GDP growth 2.6 0.3 0.2 1.7 1.6 1.6 1.7 1.7 1.7 1.7

Inflation 1.6 2.1 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Inflation 1.6 1.8 1.8 2.0 2.0 2.0 2.0 2.0 2.0 2.0

Primary balance -2.9 -4.4 -4.2 -2.7 -2.4 -2.0 -2.1 -1.6 -1.6 -1.6 Primary balance -2.9 -3.3 -3.7 -2.7 -2.4 -2.0 -2.1 -1.6 -1.6 -1.6

Effective interest rate 2.2 2.3 2.6 2.9 3.0 3.1 3.1 3.2 3.2 3.3 Effective interest rate 2.2 2.4 2.6 2.8 2.9 3.0 3.1 3.2 3.2 3.3

Real Interest Rate Shock Real Exchange Rate Shock

Real GDP growth 2.6 1.9 1.8 1.7 1.6 1.6 1.7 1.7 1.7 1.7 Real GDP growth 2.6 0.9 1.3 1.7 1.6 1.6 1.7 1.7 1.7 1.7

Inflation 1.6 2.1 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Inflation 1.6 2.4 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0

Primary balance -2.9 -2.7 -2.5 -2.7 -2.4 -2.0 -2.1 -1.6 -1.6 -1.6 Primary balance -2.9 -3.7 -3.5 -2.7 -2.4 -2.0 -2.1 -1.6 -1.6 -1.6

Effective interest rate 2.2 2.4 2.9 3.2 3.4 3.7 3.8 3.9 4.0 4.1 Effective interest rate 2.2 2.4 2.6 2.8 2.9 3.0 3.1 3.2 3.2 3.3

Combined Shock Contingent Liability Shock

Real GDP growth 2.6 0.3 0.2 1.7 1.6 1.6 1.7 1.7 1.7 1.7 Real GDP growth 2.6 0.3 0.2 1.7 1.6 1.6 1.7 1.7 1.7 1.7

Inflation 1.6 1.8 1.8 2.0 2.0 2.0 2.0 2.0 2.0 2.0 Inflation 1.6 1.7 1.6 2.0 2.0 2.0 2.0 2.0 2.0 2.0

Primary balance -2.9 -5.0 -4.8 -2.7 -2.4 -2.0 -2.1 -1.6 -1.6 -1.6 Primary balance -2.9 -2.7 -2.5 -2.7 -2.4 -2.0 -2.1 -1.6 -1.6 -1.6

Effective interest rate 2.2 2.4 2.9 3.2 3.5 3.7 3.8 3.9 4.0 4.1 Effective interest rate 2.2 2.5 2.6 2.8 2.9 3.0 3.1 3.2 3.2 3.2

Source: IMF staff

United States Public DSA–Stress Tests

Underlying Assumptions

(Percent)

Additional Stress Tests

Macro-Fiscal Stress Tests

Combined Macro-Fiscal Shock

Baseline

Real GDP Growth Shock

Baseline

Primary Balance Shock Real Interest Rate Shock

Contingent Liability Shock

Real Exchange Rate Shock

100

105

110

115

120

125

130

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Gross Nominal Public Debt

(Percent of GDP)

300

320

340

360

380

400

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Gross Nominal Public Debt

(Percent of Revenue)

26

28

30

32

34

36

38

40

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Public Gross Financing Needs

(Percent of GDP)

100

105

110

115

120

125

130

135

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Gross Nominal Public Debt

(Percent of GDP)

300

320

340

360

380

400

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Gross Nominal Public Debt

(Percent of Revenue)

26

28

30

32

34

36

38

40

2019 2020 2021 2022 2023 2024 2025 2026 2027 2028

Public Gross Financing Needs

(Percent of GDP)
UNITED STATES

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Appendix IV. External Debt Sustainability Analysis

Appendix IV. Figure 1. External Debt Sustainability Framework, 2014–2024

(In percent of GDP, unless otherwise indicated)

Projections

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Debt-stabilizing

non-interest 

current account 6/

Baseline: External debt 98.0 94.6 94.6 97.0 93.7 92.5 91.5 90.6 89.9 89.0 87.9 -1.2

Change in external debt 0.8 -3.4 0.1 2.3 -3.3 -1.1 -1.1 -0.9 -0.7 -0.9 -1.1

Identified external debt-creating flows (4+8+9) -2.9 -0.5 0.6 -2.3 -2.7 0.5 0.8 1.0 1.1 0.9 0.7

Current account deficit, excluding interest payments 0.6 0.7 0.7 0.3 0.1 0.2 0.5 0.6 0.4 0.3 0.1

Deficit in balance of goods and services 2.8 2.7 2.7 2.8 3.0 3.2 3.1 3.2 3.1 2.9 2.7

Exports 13.6 12.4 11.8 12.1 12.3 11.9 11.9 11.8 12.0 12.1 12.2

Imports 16.4 15.2 14.5 14.9 15.2 15.1 15.0 15.1 15.0 15.0 14.9

Net non-debt creating capital inflows (negative) -0.9 1.0 0.7 -0.8 -0.2 0.2 -0.1 -0.2 0.0 0.0 -0.1

Automatic debt dynamics 1/ -2.6 -2.2 -0.9 -1.8 -2.6 0.1 0.5 0.6 0.7 0.7 0.7

Contribution from nominal interest rate 1.5 1.5 1.6 2.0 2.2 2.2 2.2 2.1 2.1 2.1 2.1

Contribution from real GDP growth -2.3 -2.7 -1.4 -2.0 -2.6 -2.1 -1.7 -1.6 -1.4 -1.4 -1.3

Contribution from price and exchange rate changes 2/ -1.8 -1.0 -1.0 -1.8 -2.1 ... ... ... ... ... ...

Residual, incl. change in gross foreign assets (2-3) 3/ 3.7 -2.9 -0.5 4.6 -0.6 -1.6 -1.9 -1.9 -1.8 -1.8 -1.8

External debt-to-exports ratio (in percent) 722.6 760.3 799.1 803.7 764.4 775.1 769.9 766.3 752.1 736.8 718.2

Gross external financing need (in billions of US dollars) 4/ 17351.0 17912.7 18137.4 19079.0 19386.1 20213.6 20826.7 21458.8 22071.2 22621.9 23111.7

in percent of GDP 99.0 98.3 97.0 97.9 94.6 10-Year 10-Year 94.7 93.8 93.1 92.3 91.2 89.8

Scenario with key variables at their historical averages 5/ 92.5 91.4 90.4 89.3 88.3 87.3 -2.5

Historical Standard 

Key Macroeconomic Assumptions Underlying Baseline Average Deviation

Real GDP growth (in percent) 2.5 2.9 1.6 2.2 2.9 1.8 1.6 2.3 1.9 1.8 1.6 1.6 1.6

GDP deflator in US dollars (change in percent) 1.9 1.1 1.1 1.9 2.3 1.6 0.5 1.8 2.1 2.1 2.1 2.1 2.1

Nominal external interest rate (in percent) 1.6 1.6 1.7 2.2 2.4 0.9 1.0 2.4 2.4 2.4 2.4 2.4 2.4

Growth of exports (US dollar terms, in percent) 3.6 -4.6 -2.2 6.1 6.8 3.5 9.0 1.5 3.5 3.4 4.9 4.8 5.0

Growth of imports (US dollar terms, in percent) 4.0 -3.5 -1.7 6.8 7.4 2.6 11.4 3.3 3.5 4.2 3.5 3.4 3.0

Current account balance, excluding interest payments -0.6 -0.7 -0.7 -0.3 -0.1 -1.5 1.2 -0.2 -0.5 -0.6 -0.4 -0.3 -0.1

Net non-debt creating capital inflows 0.9 -1.0 -0.7 0.8 0.2 0.5 0.9 -0.2 0.1 0.2 0.0 0.0 0.1

1/ Derived as [r - g - r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, 

e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.

2/ The contribution from price and exchange rate changes is defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. r increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP deflator). 

3/ For projection, line includes the impact of price and exchange rate changes.

4/ Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period. 

5/ The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.

6/ Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels 

of the last projection year.

Actual 
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Appendix IV. Figure 2. External Debt Sustainability: Bound Tests 1/ 2/

(External debt in percent of GDP)

i-rate 

shock 90

Baseline 88

20

30

40

50

60

70

80

90

100

2014 2016 2018 2020 2022 2024

Interest rate shock (in percent)

(External debt in percent of GDP) 

Sources: International Monetary Fund, Country desk data, and staff estimates.

1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation 

shocks. Figures in the boxes represent average projections for the respective variables in the baseline 

and scenario being presented. Ten-year historical average for the variable is also shown. 

2/ For historical scenarios, the historical averages are calculated over the ten-year period, and the 

information is used to project debt dynamics five years ahead.

3/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current 

account balance.

4/ One-time real depreciation of 30 percent occurs in 2020.

Historical

87

Baseline

88

85

90

95

100

20

30

40

50

60

70

80

90

100

2014 2016 2018 2020 2022 2024

Baseline and historical scenarios

CA shock 

91

Baseline 88

20

30

40

50

60

70

80

90

100

2014 2016 2018 2020 2022 2024

Combine

d shock 

92

Baseline 88

20

30

40

50

60

70

80

90

100

2014 2016 2018 2020 2022 2024

Combined shock 3/

30 % 

depreciation

89

Baseline 88

20

30

40

50

60

70

80

90

100

2014 2016 2018 2020 2022 2024

Real depreciation shock 4/

Gross financing need 

under baseline

(right scale)

Non-interest current account shock 

Growth (in percent of GDP)

shock 

91

Baseline 88

20

30

40

50

60

70

80

90

100

2014 2016 2018 2020 2022 2024

Baseline:

Scenario:

Historical:

2.4

2.9

0.9

Baseline:

Scenario:

Historical:

1.7

0.9

1.8

Baseline:

Scenario:

Historical:

-0.4

-0.9

-1.5

Growth shock 

(in percent per year)
# FSAP Recommendation Developments

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.

FSOC recently issued proposed interpretive guidance under which, if the guidance is adopted, the Council 

would prioritize its efforts to identify, assess, and address potential risks and threats to U.S. financial stability 

through a process that emphasizes an activities-based approach. This approach reflects two priorities: (1) 

identifying and addressing, in consultation with relevant financial regulatory agencies, potential risks and 

emerging threats on a system-wide basis, thereby reducing the potential for competitive distortions among 

companies and in markets that could arise from entity-specific regulation and supervision; and (2) allowing 

relevant financial regulatory agencies, which generally possess greater information and expertise with respect 

to company, product, and market risks, to address potential risks, rather than subjecting the companies to new 

regulatory authorities.

2 Include in FSOC Annual Report 

specific follow-up actions for 

each material threat identified 

The FSOC’s Annual Reports discuss in a detailed manner each material threat identified, provide updates on 

regulations and other measures proposed or implemented in response to each threat, and outlines the research 

agenda and policy recommendations, if needed. However, specific timelines and responsible agencies are not 

identified.

Appendix V. Implementation of FSAP Recommendations

INTERNATIONAL MONETARY FUND 57

UNITED STATES
# FSAP Recommendation Developments

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; macroprudential tools could be used in the real estate sector (e.g., by 

varying maximum loan-to-value and debt-to-income ratios). 

The OCC, FDIC, and Federal Reserve (FRB), have the authority under their respective regulations to determine 

whether or not to activate the CCyB (and to determine the appropriate level) for the banking organizations 

subject to the respective jurisdictions. Staff from the three agencies meet on a regular basis to discuss their 

views on CCyB implementation and have generally agreed to coordinate as appropriate.

In September 2016, the FRB approved a final policy statement detailing the framework for setting the CCyB. The 

policy statement provides background on the range of financial-system vulnerabilities and other factors the FRB 

may take into account as it evaluates settings for the buffer, including but not limited to, leverage in the 

nonfinancial and financial sectors, maturity and liquidity transformation in the financial sector, and asset 

valuation pressures. Due to the constantly evolving nature of economic and financial risks, the FRB is likely to 

adapt the range of indicators and models over time. The FRB has re-assessed the level of the CCyB annually 

since adopting the policy statement and has begun issuing a semiannual report on financial stability conditions. 

Most recently, in March 2019, the FRB affirmed the amount of the CCyB at 0 percent.

The NAIC Financial Stability (EX) Task Force is working to enhance the macroprudential toolkit of state 

insurance regulators. The Macro Prudential Initiative (MPI) addresses four focus areas: developing a liquidity 

stress testing framework for material life insurance groups, including enhancing disclosures to better assess 

products with higher liquidity risk potential; capital stress testing to be addressed as part of the NAIC group 

capital calculation; reviewing existing recovery and resolution processes and disclosures to identify any 

enhancement needs; and determining if there are material gaps in existing counterparty exposure disclosures.

58

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# FSAP Recommendation Developments

4 Expedite heightened prudential 

standards for designated nonbank 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, risk management requirements, and restrictions on intercompany transactions between GECC 

and its parent. The FSOC rescinded the designations of GECC in June 2016; AIG in September 2017; and 

Prudential Financial, Inc. in October 2018. In March 2016, a federal district court rescinded FSOC’s designation 

of MetLife, Inc. As a result, there are currently no companies designated by the FSOC for Federal Reserve 

supervision and enhanced prudential standards.

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 (DFA), these proposed standards would apply consistent liquidity, corporate governance, and risk 

management standards to the firms and require the firms to employ both a chief risk officer and chief actuary.

5 Improve data collection, and 

address impediments to interagency data sharing

The Office of Financial Research (OFR) Interagency Data Inventory (IDI), which catalogues the data that FSOC 

member agencies purchase or collect from the industry or derive from other data, had its annual update in 

March 2017. FSOC member agencies use the inventory for identifying data gaps and for improving research 

and analysis but, due to specific restrictions to data sharing, the listing of data in the inventory does not 

necessarily signify that all FSOC member agencies have access to all data sets. In support of FSOC, OFR 

facilitated a review of data sharing agreements to identify areas for standardization (see OFR 2016 Financial 

Stability Report).

OFR, along with the FRB, Federal Reserve, Bank of New York (FRBNY), and the Securities and Exchange 

Commission (SEC) have completed pilot data collections about bilateral repurchase agreements (repos) and 

securities lending activity. The OFR has made the summary of findings publicly available on its website.1 Steady 

progress in data collection and sharing is being made, including areas previously identified as those where 

 

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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# FSAP Recommendation Developments

more work needs to be done: (i) The collection of data on securities lending, and bilateral repos is still at an 

early stage; and (ii) outstanding obstacles to interagency data sharing should be reduced, as recommended in 

the FSAP. 

Section 21(c)(7) of the Commodity Exchange Act directs swap data repositories to make swap data available to 

certain enumerated domestic authorities and any other entity the Commodity Futures Trading Commission 

(CFTC) determines to be appropriate, which may include certain types of foreign authorities. In 2011, the CFTC 

adopted rules implementing these statutory swap data access provisions by establishing processes by which 

various categories of entities could gain access to swap data held by swap data repositories. In June 2018, the 

CFTC amended the 2011 access requirements such that certain authorities may obtain swap data access more 

efficiently. The amendments removed statutorily-mandated requirements that foreign and domestic regulators 

indemnify swap data repositories for any expenses arising from litigation relating to the information provided 

by the repositories. The amendments also set forth a process for the CFTC to deem other domestic and foreign 

regulators appropriate to receive access to swap data held by the repositories.

In August 2016, the SEC adopted rules to provide authorities with conditional access to security-based swap 

data held by SEC-registered security-based swap data repositories. Authorities must agree to keep confidential 

the data they receive from the repository, and the rules adopted require a memorandum of understanding or 

other arrangement between the SEC and the data recipient addressing the confidentiality of the information 

made available.

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# FSAP Recommendation Developments

Regulation and supervision

6 Give primacy to safety and 

soundness in the supervisory 

objectives of Federal Banking 

Agencies 

The federal banking agencies’ mandates are established by statute and have not been redefined since 

enactment of the DFA. Safety and soundness has not been given primacy in the supervisory objectives of the 

federal banking agencies to the exclusion of other objectives, such as consumer compliance and financial 

stability. However, safety and soundness has long been one of the core supervisory objectives of the federal 

banking agencies. The federal banking agencies are required to consider the safety and soundness of 

supervised institutions and the banking system as a whole in a variety of supervisory contexts, including 

reviewing and approving applications; the frequency of examining supervised institutions; ordering institutions 

to cease and desist; imposing civil money penalties; promulgating regulations; and restricting the payment of 

dividends, extensions of credit to related parties, employee compensation, and operations of subsidiaries. 

The multi-agency statutory framework requires 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. Banks are 

examined for safety and soundness under the Uniform Financial Institutions Rating System. The Federal 

Reserve examines bank holding companies and savings and loan holding companies for safety and soundness 

under its new large financial institution rating system finalized in 2018, and under its RFI/C(D) rating system 

now used to rate smaller holding companies. 

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 August 2018, the FRB adopted a final rule to address single-counterparty credit risk. The rule applies singlecounterparty credit limits to bank holding companies (BHCs) and foreign banking organizations with total 

consolidated assets of $250 billion or more, including any U.S. intermediate holding company (U.S. IHCs) of a 

foreign banking organization with $50 billion or more in total consolidated assets, and any BHC identified as a 

global systemically important BHC under the Federal Reserve’s capital rules. Under the final rule: (i) GSIBs are 

restricted to a credit exposure of no more than 15 percent of the firm’s tier 1 capital to another systemically 

important financial firm, and up to 25 percent of the firm’s tier 1 capital to any other counterparty; (ii) non-GSIB 

UNITED STATES

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# FSAP Recommendation Developments

BHCs with $250 billion or more in total consolidated assets are restricted to a credit exposure of no more than 

25 percent of the firm’s tier 1 capital to another counterparty; (iii) U.S. IHCs that have total consolidated assets 

of at least $50 billion but less than $250 billion are restricted to a credit exposure to a counterparty which 

cannot exceed 25 percent of the IHC’s total regulatory capital plus the balance of its allowance for loan and 

lease losses; (iv) U.S. IHCs that have total consolidated assets of $250 billion or more but are not major U.S. 

IHCs are restricted to a credit exposure to a counterparty which cannot exceed 25 percent of the IHC’s tier 1 

capital; (v) U.S. IHCs that have total consolidated assets of $500 billion or more are restricted to a credit 

exposure to a major counterparty which cannot exceed 15 percent of the IHC’s tier 1 capital, and up to 25 

percent of the firm’s tier 1 capital to any other counterparty.

However, comparable supervisory guidance on other risk concentrations has not been yet issued. The separate 

and additional limits for money market investments and security holdings available to banks (but not federal 

savings associations) continue to leave open the possibility of excessive risk concentrations. In late 2015, the 

agencies issued guidance on commercial real estate lending, which includes, among other things, a discussion 

of the importance of managing concentration risk.

Guidance on operational risk and interest rate risk: The agencies participated in the development of the 

Standardized Approach under the Basel III reforms and are considering revising the U.S. capital rules to move 

away from the Advanced Measurement Approach (AMA). The agencies have also issued a number of new 

pieces of guidance related to operational risk. The approach to interest rate risk in the banking book does not 

include specific capital charges or limits being set under Pillar 2. Consistent with the IRR standard issued by 

Basel in April 2016, U.S. guidance with respect to IRR requires proper oversight of models and analysis of risk 

under a variety of scenarios. Data is collected at the regulatory level during examinations. 

Limit structures for related party lending: section 22(h) of the Federal Reserve Act and the existing regulatory 

framework places limits and requirements on banks engaging in related party lending (e.g., Regulation O and 

W). This framework remains the same.

62

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# FSAP Recommendation Developments

8 Set up an independent 

insurance regulatory body with 

nationwide responsibilities and 

authority 

The supervisory and regulatory architecture for insurance firms has not changed. 

9 Implement principle-based 

valuation standard for life 

insurers consistently across the 

states 

All states have adopted the Valuation Manual and life principle-based reserving (PBR). Life PBR is optional 

during a 3-year transition period, and becomes mandatory in 2020. A total of 37 companies have now 

implemented PBR, and must file a PBR Actuarial Report annually providing details on their PBR reserves, 

including asset and liability assumptions and valuation methodology. To help ensure consistency in application, 

the Valuation Analysis Working Group (VAWG) was formed to support states in their review of PBR and 

uniformly address questions and issues that arise. The VAWG reviewed all of the 2017 reports, documented the 

results in a paper distributed to companies and regulators, and recommended clarifying amendments to the 

Valuation Manual where necessary to ensure consistent interpretation. These amendments have been drafted 

and are going through the NAIC exposure and adoption process for the 2020 Valuation Manual.

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 FRB approved a notice of proposed rulemaking to apply enhanced prudential standards 

for insurance companies designated by the FSOC. As required under the DFA, these proposed standards would 

apply consistent liquidity, corporate governance, and risk management standards to the firms and require the 

firms to employ both a chief risk officer and chief actuary.

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. The proposed group 

capital calculation is currently being tested by over 30 insurance groups and 15 lead states, which is expected 

to be completed by early October. 

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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 and the NAIC Own Risk and Solvency Assessment (ORSA) model Act. Additional 

updates to the NAIC model holding company act relating to powers of a group-wide supervisor (GWS) of an 

IAIG have been adopted in 29 states and will be required to be adopted in all accredited U.S. states and 

jurisdictions by January 1, 2020. Finally, 27 states have adopted the NAIC corporate governance model act, 

which will also be required to be adopted in all accredited U.S. states and jurisdictions by January 1, 2020.

11 Provide needed resources to 

the Securities and Exchange 

Commission (SEC) and 

Commodity Futures Trading 

Commission (CFTC) and 

enhance their funding stability 

Information on SEC/CFTC funding for Fiscal Year 2019, is available at 

https://www.congress.gov/bill/116th-congress/house-joint-resolution/31/text.

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 around 10 percent of investment 

advisers per year. 

The SEC has continued to work to increase examination coverage of registered investment advisers. For 

example, 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 advisers in fiscal year 2016 and 15% of investment advisers in fiscal year 2017. In fiscal year 2018, 

SEC staff examined 17% of investment advisers while the number of registered investment advisers increased 

by approximately 5% from the previous fiscal year.

12 Introduce explicit requirements 

on risk management and 

internal controls for asset 

managers and commodity pool

operators 

The FSOC has continued to monitor potential risks to financial stability stemming from the asset management 

industry. As noted in its 2017 and 2018 Annual Reports, FSOC has continued to monitor the asset management 

space and has recommended that the SEC continue to monitor it as well (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. Certain aspects of the SEC’s liquidity risk management rule were revised in 2018. 

(See further below) 

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13 Complete the assessment of 

equity market structure and 

address regulatory gaps

Since the FSAP, the SEC has issued several actions related to equity market structure that are related to the 

issues raised in the FSAP recommendations. Specifically, the SEC has adopted amendments to existing 

regulation to enhance operational transparency and regulatory oversight of ATSs. 

See https://www.sec.gov/rules/final/2018/34-83663.pdf. In addition, the SEC approved the consolidated audit 

trail, which would enable regulators to efficiently track all trading activity in the U.S. equity and options markets. 

See https://www.sec.gov/rules/sro/nms/2016/34-79318.pdf. In addition, SEC staff continually evaluates equity 

market structure. For example, SEC staff recently announced a series of roundtables devoted to specific equity 

market structure topics. The first roundtable was held on April 23, 2018 and considered market structure issues 

for thinly-traded securities. More recently, in October 2018, the SEC staff held a Roundtable on Market Data 

and Market Access to examine the infrastructure for distributing market data, including pre-trade and posttrade information, to U.S. investors (https://www.sec.gov/spotlight/equity-market-structure-roundtables). 

Finally, SEC staff analysis of market structure topics is published on the SEC website at 

http://www.sec.gov/marketstructure/.

Stress testing

14 Conduct liquidity stress testing 

for banks and nonbanks on a 

regular basis; run regular 

network analyses; and link 

liquidity, solvency, and network 

analyses 

While the Comprehensive Capital Analysis and Review (CCAR) and DFA stress tests continue to take the form of 

supervisory solvency stress tests in which second-round effects are not explicitly incorporated, they are 

implicitly captured in a few ways. First, the macro scenarios are based on very severe recessions coupled with 

significant declines in asset prices. In the past, such recessions have been associated with very weak banking 

sectors, so the macro dynamics should reflect the amplification effects from the banking system. Second, the 

global market shock is based on the movements of asset prices in the second half of 2008, a period that saw 

the default of a SIFI and the distress of several systemically important institutions. Thus, market conditions 

should reflect the “second round” effects of the failure of a major financial company. Third, in implementing the 

default of the largest counterparty element, participating banks are instructed to compute outcomes if the 

counterparty whose default would cause the largest losses (under the market conditions described in the 

market shock) was to default. While this does not capture additional second-round effects beyond those 

described above, it does guarantee that the first-round effects are as large as possible.

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Federal banking agencies finalized a rule implementing the Liquidity Coverage Ratio (LCR) in 2014 and 

proposed a Net Stable Funding Ratio (NSFR) in 2016. Per definition, the LCR is a short-term liquidity stress test, 

and banks are expected to pass the underlying stress scenario on a continuous basis. The proposed NSFR 

would establish a quantitative metric that measures the stability of a firm’s funding profile over a one year 

timeframe. However, stress testing exercises, like the DFA stress tests or the CCAR, focus on credit and market 

risk, not on funding and market liquidity risk. 

Authorities do not conduct, on a regular basis, liquidity stress tests on nonbanks. However, the SEC requires 

money market mutual funds (MMMFs) to conduct regular stress tests, including on their liquidity. 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. 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).

While most large U.S. life insurers perform their own internal liquidity stress testing work, a consistent 

regulatory liquidity stress test is currently under development by the NAIC. This requirement will exist for any 

insurance group or legal entity with U.S. results that trigger any of six thresholds (fixed and indexed annuities, 

funding agreements and GICs, derivatives, securities lending, repurchase agreements, and borrowed money). 

Once a group triggers the liquidity stress testing requirement, the liquidity stress test itself will be based upon 

internal company cash flows, will utilize consistent stress tests and “what if” modifications (currently being 

established), and be applied at the legal entity level (including the holding company) with results reported 

individually and as a group. The target date for the proposed liquidity stress testing design is August 2019. 

Network analysis, and integration with liquidity and solvency stress tests. The DFA stress tests and the CCAR do 

not integrate different risk classes beyond credit and market risk. The tests look at banks individually, with 

contagion and spillover risks entering implicitly though the macro dynamics in the current scenarios rather than 

explicitly being assessed in the tests. Publicly available information suggests there is no supervisory 

requirement to integrate in a single framework different risk factors. OFR has conducted research on network 

models within the context of stress testing and contagion.

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In March 2010, the U.S. federal banking agencies issued guidance titled “The Interagency Policy Statement on 

Funding and Liquidity Risk Management” (75 FR 13656 (March 22, 2010)) (“Liquidity Risk Policy Statement”). 

The Liquidity Risk Policy Statement incorporates elements of the Basel Committee on Banking Supervision’s 

(BCBS) Principles for Sound Liquidity Risk Management and Supervision (“Basel Liquidity Principles”) and is 

supplemented by other liquidity risk management principles previously issued by the U.S. federal banking 

agencies. The Liquidity Risk Policy Statement discusses examples for fundamental liquidity risk management 

practices that the U.S. federal banking agencies generally consider to be consistent with safety and soundness 

standards and other applicable laws and regulations, including a comprehensive management process for 

identifying, measuring, monitoring, and controlling liquidity risk. It also emphasizes the central role of corporate 

governance, cash-flow projections, stress testing, ample liquidity resources, and formal contingency funding 

plans as tools for effectively measuring and managing liquidity risk. In addition, in 2014, the Federal Reserve 

adopted Regulation YY (12 CFR part 252) to implement the enhanced prudential standards established under 

section 165 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) (12 U.S.C. § 

5365) for BHCs , including foreign-based BHCs, with total consolidated assets of $50 billion or more (covered 

companies). These enhanced prudential standards included requirements related to liquidity risk management 

and liquidity sufficiency. The Regulation YY liquidity requirements, which came into effect in 2015 for the 

relevant domestic BHCs and 2016 for the relevant foreign banking organizations, provide a regulatory 

framework for large banking institutions to establish and maintain robust liquidity risk management practices, 

perform internal stress tests for determining the adequacy of liquidity resources, and maintain a buffer of highly 

liquid assets to cover cash flow needs over a 30-day stress period, or the first 14 days of a 30-day stress period 

in the case of the collective U.S. branches and agencies of a foreign banking organization operating in the 

United States. As a result of statutory changes, the Board has proposed to change the threshold for Regulation 

YY to apply to bank holding companies with total assets of $100 billion or more (in addition, in the case of 

foreign banking organizations, the Board has proposed to raise the threshold to $100 billion or more in 

combined U.S. assets). A component of Regulation YY’s liquidity stress testing requirement is evaluated 

annually. For example, in one year supervisors may review foreign banking organizations’ compliance with the 

requirement that they conduct stress testing with respect to their U.S. branches and agencies, and in the 

following year supervisors may examine compliance by bank holding companies. In addition, the Federal 

Reserve conducts an annual review of the liquidity stress testing practices, liquidity position, and liquidity risk 

management practices of systemically important banking organizations. Under this program, supervisors 

assess the adequacy of firms' liquidity positions relative to their unique risks and test the reliability of these 

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firms' approaches to managing liquidity risk. The review provides a regular opportunity for supervisors to 

respond to evolving liquidity risks and firm practices over time. The supervisory review evaluates firms' liquidity 

positions both through a range of supervisory liquidity metrics and through analysis of firms' internal stress 

tests. The assessment includes an examination of the stress tests that each firm uses to make funding decisions 

and to determine its liquidity needs and an assessment of a range of liquidity risk management practices.

15 Develop and perform regular 

insurance stress tests on a 

consolidated group-level basis

State insurance regulators assess the stress tests performed by insurance companies on a consolidated grouplevel basis through the Own Risk and Solvency Assessment (ORSA) under the Risk Management and Own Risk 

Assessment Model Act, which has been adopted by all states.

Furthermore, the aforementioned group capital calculation contemplates determining if stress testing should 

be included in the filing of that calculation. 

16 Develop and perform regular 

liquidity stress tests for the 

asset management industry 

The FSOC continues to monitor potential risks to financial stability stemming from the asset management 

industry. In addition, the SEC issued three proposals in 2015. The SEC proposals addressed enhanced data 

reporting for registered investment companies and for investment advisers regarding their separately managed 

account business; a strengthening of open-end funds’ liquidity risk management and disclosure; and limits to 

leverage obtained through derivatives transactions by registered investment companies. 

In its 2017 Annual Report, the FSOC noted the implementation of the SEC rules and recommended that the 

SEC monitor their implementation to evaluate whether the chosen regulatory approach addressed 

potential risks effectively and efficiently.

In its 2018 Annual Report, the FSOC recommended that the SEC continue to monitor the implementation of its 

liquidity risk management and data reporting rules and that it evaluate the extent to which they addressed 

potential risks in the asset management industry. FSOC also supported efforts to improve metrics and analytical 

tools used to evaluate asset management risks, as well as continued collaboration among regulators and 

industry on reporting standards.

The SEC requires MMMFs to conduct regular stress tests, including on their liquidity. Specifically, MMMFs are 

required to periodically test their ability to maintain weekly liquid assets of at least 10% and to minimize 

principal volatility in response to specified hypothetical events. These events include: (i) increases in the level of

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short-term interest rates; (ii) the downgrade or default of particular portfolio security positions, each 

representing various exposures in a fund’s portfolio; and (iii) the widening of spreads in various sectors to which 

the fund’s portfolio is exposed, each in combination with various increases in shareholder redemptions.

The SEC also requires that an open-end fund assess, manage, and periodically review (with such review 

occurring no less frequently than annually) its liquidity risk, based on the following factors as applicable: (1) 

investment strategy and liquidity of portfolio investments during both normal and reasonably foreseeable 

stressed conditions (including whether the investment strategy is appropriate for an open-end fund, the extent 

to which the strategy involves a relatively concentrated portfolio or large positions in particular issuers, and the 

use of borrowings for investment purposes and derivatives); (2) short-term and long-term cash flow projections 

during both normal and reasonably foreseeable stressed conditions; and (3) holdings of cash and cash 

equivalents, as well as borrowing arrangements and other funding sources. In addition to these factors, an ETF 

also must consider, as applicable: (1) the relationship between the ETF’s portfolio liquidity and the way in 

which, and the prices and spreads at which, ETF shares trade, including the efficiency of the arbitrage function 

and the level of active participation by market participants (including authorized participants); and (2) the effect 

of the composition of baskets on the overall liquidity of the ETF’s portfolio. A fund may incorporate other 

considerations, in addition to the above factors, in evaluating its liquidity risk. In addition, this requirement is 

principles-based, and thus each fund may develop and adopt procedures to review the fund’s liquidity risk 

tailored as appropriate to reflect the fund’s particular facts and circumstances.

In 2016, the SEC further promulgated rules adopting Form N-PORT, which requires quarterly reporting to the 

SEC of a registered investment company’s complete portfolio holdings and additional information intended to 

facilitate risk analysis and other SEC oversight. Among other things, Form N-PORT requires disclosure of flow 

information (including the total net asset value of shares sold, redeemed or repurchased).

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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 

In September 2015, SEC proposed a rule for MFs and ETFs designed to enhance liquidity risk management, 

provide new disclosures regarding fund liquidity, and allow MFs to adopt swing pricing to pass on transaction 

costs to entering and exiting investors. The proposal has since been adopted and implemented.

The SEC has adopted rules requiring that open-end funds have liquidity risk management programs, as well as 

rules requiring enhanced data reporting for registered investment companies, As a result of the reporting 

requirements, such as Form N-LIQUID as discussed herein, SEC staff has a greater ability to gather and analyze 

operational information directly from participants in the asset management industry, to gain insight into 

developing market risks, understand the effects of macroeconomic developments, and identify particular funds 

or advisers that may require additional monitoring, all of which assist in understanding whether a fund or funds 

may be susceptible to runs. In addition, the SEC also adopted rules permitting open-end funds under certain 

circumstances to use swing pricing to pass on transaction costs to the shareholders associated with purchases 

and redemptions and to help funds manage liquidity risk.

MMMFs and variable NAV: Rules issued by the SEC that have been fully implemented require floating NAVs for 

institutional prime MMMFs. Retail and government MMMFs are permitted 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.

In its 2018 annual report, FSOC recommended that the SEC continue to monitor the impact of its reforms in 

light of the approximately $1 trillion shift from prime MMMFs to government MMMFs since the adoption of the 

reforms.

As previously noted, MMMFs are required to file Form N-MFP monthly, which includes information regarding, 

among other things, their service providers, maturity, liquidity, and assets and liabilities, and the full holdings of 

the MMMF’s portfolio securities. SEC staff monitor the information provided in these forms to, among other 

things, monitor changes and trends, such as trends in exposures, asset composition, and trading activity; and to 

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# FSAP Recommendation Developments

identify “outliers” based on, for example, investment exposures, and liquidity, all of which can help to identify 

MMMFs that may be susceptible to runs. MMMFs must also file, upon the occurrence of certain specified 

events (such as the default or event of insolvency of a portfolio security issuer), Form N-CR with the SEC.

18 Complete triparty repo (TPR) 

reforms and measures to 

reduce run-risk, including the 

possible use of central clearing 

platforms 

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 tri-party book 

through pre-committed lines and incur a capital charge from the credit extension. 

Risk of fire-sales of collateral by a dealer losing access to repo or by a dealer’s creditors: The risk of collateral 

fire-sales has been reduced, but not eliminated, through post-crisis capital and liquidity regulations.

Intraday counterparty risk exposure in the tri-party repurchase (repo) market contracted significantly in recent 

years, but the potential for fire sales of collateral by creditors of a defaulted broker-dealer remains a significant 

risk. Additionally, data gaps continue to limit regulators’ ability to monitor the aggregate repo market and 

identify interdependencies among firms and market participants. 

19 Enhance disclosures and 

regulatory reporting of 

securities lending 

In early 2016, the OFR, FRB, and SEC completed a joint securities lending data collection pilot. The purpose of the 

pilot data collection was to collect information directly from seven securities lending agents that participated in 

the pilot project voluntarily. In April 2016, the FSOC expressed its view that without comprehensive information 

on securities lending activities across the financial system, regulators cannot fully assess potential financial 

stability risk, and encouraged efforts to propose and adopt a rule for a permanent collection of data on 

securities lending Relevant agencies continue to consult on these issues. 

In October 2016, the SEC adopted new reporting requirements for registered investment companies, which 

include information on their securities lending activities. Registered investment companies were required to 

comply with requirements to provide annual information regarding securities lending beginning on June 1, 

2018.

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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. 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, U.S. bank swap dealers are now required to collect 

and post margin on (almost) all swaps that cannot be centrally cleared. The use of uncleared derivatives is 

thereby made less attractive, and the requirements will encourage the use of standard derivatives that go 

through central clearinghouses. This measure also helps ensure that a default of a major over-the-counter 

(OTC) derivatives market participant would not bring down the system. 

In October 2015, the 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 to establish capital and margin requirements for swap dealers, major swap participants, security-based 

swap dealers, and major security-based swap participants regulated by one of the aforementioned agencies. 

The final rule phased in the variation margin requirements between September 1, 2016 and March 1, 2017. The 

initial margin requirements began on September 1, 2016 and phase in over four years. 

In January 2016, the CFTC issued its final rule on margin requirements for uncleared swaps. The CFTC final rule 

on cross-border application of margin requirements was published in May 2016. Implementation of the CFTC’s 

final regulations on margin requirements for swap entities not regulated for this purpose by a U.S. prudential 

regulator was initiated for initial margin on a phase-in basis starting on September 1, 2016 and was effective for 

variation margin as of March 1, 2017. The CFTC amended its rules in November 2018 to harmonize with the 

requirements for swap entities regulated by the U.S. prudential regulators. In addition, the CFTC issued 

comparability determinations for margin requirements for uncleared swaps for Japan (September 2016, 

updated March 2019), the European Union (October 2017), and Australia (March 2019).

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21 Improve data availability across 

bilateral repo/triparty repo and 

securities lending markets 

Data on the triparty and GCF repo markets are published regularly. In February 2019, OFR adopted rules 

requiring daily reporting by covered central counterparties of centrally cleared repo transactions, comprising 

approximately one-quarter of all U.S. repo market transactions. In October 2016, SEC adopted new reporting 

requirements for registered investment companies, which include information about their securities lending 

activities. Registered investment companies were required to comply with requirements to provide annual 

information regarding securities lending beginning on June 1, 2018.

Pursuant to the FRB’s supervisory authority, the FRBNY collects trade-by-trade data on tri-party repo 

transactions on a daily basis from the Bank of New York Mellon. In February 2019, the OFR published a final rule 

that will require the Fixed Income Clearing Corporation (FICC) to report data on FICC-cleared repo transactions 

beginning in October 2019. The FRB will act as OFR’s collection agent, with required data to be submitted 

directly to the FRBNY. (Currently, the FRBNY relies on a voluntary agreement with an FICC affiliate to obtain 

data regarding bilateral repos and General Collateral Financing Repo transactions that are cleared by FICC).

Liquidity backstops, crisis 

preparedness, and resolution

22 Revamp the Primary Credit 

Facility as a monetary 

instrument 

In 2016, the Federal Reserve considered the role of the Primary Credit Facility as part of an evaluation of its 

long-run operating framework. In particular, at the FOMC’s November 2016 meeting Federal Reserve staff 

discussed considerations regarding potential choices of operating regimes and the issue of stigma associated 

with borrowing from the discount window. No changes to the Primary Credit Facility were made at that time.

Subsequently, staff of the Federal Reserve System has continued to study the role of Primary Credit. This work 

has included an October 2017 conference on the stigma associated with use of the discount window.

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 

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# FSAP Recommendation Developments

number of failing firms and in which at least five entities would be eligible to participate.” These additional 

limitations are consistent with and provide further support to the revisions made by the DFA that a program 

should not be for the purpose of aiding specific companies to avoid bankruptcy or resolution. Solvent nonbanks 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 

FSOC has been used as a forum for regulators to discuss certain fast-emerging topics including Brexit, 

Hurricane Sandy, and the bankruptcy of MF Global. Crisis preparedness and management has not been formally 

assigned to the FSOC, and the statutory purpose of the FSOC has not otherwise changed since the last FSAP. 

25 Extend the Orderly Liquidation 

Authority powers to cover 

systemically-important 

insurance companies and U.S.

branches of foreign-owned 

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.

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. 

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27 Finalize recovery and resolution 

plans for SIFIs, agree 

cooperation agreements with 

overseas authorities 

Important steps have been made toward 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 December 27, 2018, the OCC revised its enforceable guidelines regarding standards for recovery planning 

by increasing the average total consolidated assets threshold for applying the guidelines to banks from $50 

billion to $250 billion in average total consolidated assets, and decreasing from 18 months to 12 months the 

applicable compliance period. The guidelines otherwise remain unchanged and continue to 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 DFA, the FDIC has developed 

resolution plans for G-SIFIs and has included in each plan a resolution strategy and an operational plan that 

meet the standards set out in the applicable Key Attributes and relevant annexes thereto.

Furthermore, the establishment of living wills is an essential requirement in the DFA, under which SIFIs and 

certain other firms are asked to design, and submit for review to the FRB and the FDIC, concise plans explaining 

their orderly resolution under bankruptcy. Since 2012, the FRB and the FDIC have reviewed several iterations of 

plans from U.S. BHCs and foreign banking organizations and have issued substantial feedback. In December 

2017, the FRB and the FDIC jointly issued feedback to the eight largest and most complex domestic BHCs 

concerning their most recent plans. The agencies noted that the U.S. G-SIBs have made substantial progress 

across numerous areas, and identified four areas in which more work will need to be done by all eight U.S. GSIBs to continue to improve their resolvability: intra-group liquidity; internal loss-absorbing capacity; 

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derivatives; and payment, clearing, and settlement activity. In December 2018, the FDIC and the FRB issued final 

resolution plan guidance, after a notice and comment period, to the US. G-SIBs. In addition, in December 2018, 

the FDIC and the FRB jointly issued feedback to the largest four foreign banking organizations with operations 

in the U.S. on their resolution plans. The FDIC and the FRB also have continued to review resolution plans 

submitted by other firms subject to the requirement and to provide feedback. The next submissions from the 

U.S. G-SIBs are expected in July 2019. Plans from other firms presently are due in December 2019 and July 2020.

Firm-specific cooperation agreements that meet the standards set out in the relevant Key Attributes and 

relevant annexes thereto have been executed for all U.S. G-SIBs and for one U.S. G-SII. In December 2016, the 

FRB 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. IHCs of foreign GSIBs. The final rule is consistent with the Financial 

Stability Board (FSB) TLAC standard, but is stricter in a few respects. The final rule also imposes clean holding 

company requirements on GSIBs. In April 2019, the U.S. banking agencies jointly proposed restrictions on 

investments in TLAC instruments; this proposal is consistent with the BCBS’s TLAC Holdings standard.

State insurance regulators through their work at the NAIC are reviewing the value of aspects of resolution 

planning for large insurance groups under its Macro Prudential Initiative (MPI). The goal of MPI is to consider 

some new or improved tools to 1) better monitor and respond to the impact of external financial and economic 

risks on the firms state insurance regulators supervise, including financial, reputational, litigation or regulatory 

risks for the firm; and 2) better monitor and respond to risks emanating from or amplified by insurers that 

might be transmitted externally, and which may result in significant impacts to the stability of broader financial 

markets. Moreover, State insurance regulators are authorized, under revisions to the NAIC model holding 

company act, to have the power to act as a group-wide supervisor (GWS) for identified IAIGs, and these powers 

enable the GWS to be able to order mitigation of material risks to the insurance operations of the group which 

could if necessary include the power to require the development of resolution and/or recovery plans. The 

revisions to the NAIC model holding company act that provide for the powers to act as a GWS of an IAIG have 

been adopted in 29 states and will be required to be adopted in all accredited U.S. states and jurisdictions by 

January 1, 2020.

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76 INTERNATIONAL MONETARY FUND
# FSAP Recommendation Developments

Financial market 

infrastructures (FMIs)

28 Identify and manage systemwide risks related to 

interdependencies among FMIs, 

banks, and markets

U.S. authorities continue efforts to increase the resilience and recoverability of FMIs, with particular emphasis 

on central counterparties (CCPs). U.S. authorities advanced domestic efforts and continued to participate in, 

and contribute to, numerous international work streams. 

Domestically, U.S. authorities have undertaken several important efforts, including the following: 

• U.S. authorities have adopted risk management standards for systemically important FMIs, including 

expectations for recovery and orderly wind-down planning. Authorities are examining the viability and 

comprehensiveness of these FMIs’ recovery and orderly wind-down plans.

• The authorities also are actively engaging in resolution planning for systemic CCPs. The FDIC and the 

CFTC co-host crisis management group (CMGs) meetings for two U.S. CPs- that are considered 

systemically important in more than one jurisdiction, the Chicago Mercantile Exchange and Ice Clear 

Credit, LLC. The next CMG meetings are scheduled for June 2019.

• In September 2016, the CFTC issued final cybersecurity testing rules for FMIs and markets.

• In May 2018, FRB welcomed the release of the CPMI’s strategy for reducing the risk of wholesale 

payments fraud related to endpoint security and reaffirmed its commitment to work collaboratively with 

domestic and international stakeholders to promote the safety and resiliency of the wholesale 

payments ecosystem worldwide. FRB staff, in close collaboration with the Federal Reserve Banks, has 

been engaged in efforts domestically to advance the strategy in the U.S. and actively monitor progress. 

International efforts include the following: 

• The U.S. authorities participated in the Study Group on Central Clearing Independencies (SGCCI), which 

was established by the FSB, the International Organization of Securities Commissions (IOSCO), and the 

BCBS to identify, quantify and analyze interdependencies between CCPs and major clearing members, 

and financial service providers. Results from the SGCCI’s analysis were published in July 2017 and 

August of 2018.

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INTERNATIONAL MONETARY FUND 77
# FSAP Recommendation Developments

• The U.S. authorities participated in, and the CFTC co-chaired, the Derivatives Assessment Team, 

established by the FSB, BCBS, the Committee on Payments and Market Infrastructures (CPMI) and 

IOSCO, that published a report on Incentives to centrally clear OTC derivatives.

• The U.S. authorities, as members of CPMI-IOSCO, participate in the drafting of reports, at both the 

consultation and final stage, for the CPMI-IOSCO’s Framework for Supervisory Stress Testing of CCPs, 

CPMI-IOSCO’s Resilience of Central Counterparties (CCPs): Further Guidance on the PFMI, and 

Recovery of FMIs. The final versions were published in July 2017 (Resilience of CCPs and Recovery of 

FMIs) and April 2018 (the Framework for Supervisory Stress Testing for CCPs). The CFTC co-chairs the 

CPMI-IOSCO Policy Standing Group. U.S. authorities also contributed to CPMI-IOSCO’s report on 

“Guidance on cyber resilience for financial market infrastructures” published in June 2016.

• U.S. authorities are participating in the FSB work streams on resolution of CCPs and the continuity of 

access to FMIs for members in resolution. The FDIC co-chairs the FSB work stream on CCP resolution, 

which published in July 2017 “Guidance on Central Counterparty Resolution and Resolution Planning,” 

and in November 2018 issued a discussion paper for consultation “Financial resources to support CCP 

resolution and the treatment of CCP equity in resolution.”

Offer Fed accounts to 

designated Financial Market 

Infrastructures (FMUs) to 

reduce dependencies on 

commercial bank services

By December 2017, requests from designated FMIs have been authorized by the Federal Reserve Banks of 

Chicago and New York. 

The following five U.S. FMIs have been designated as systemically important utilities and are authorized to open 

accounts at the central bank: ICE Clear Credit, CME Inc., the Options Clearing Corporation, the National 

Securities Clearing Corporation, and the Fixed Income Clearing Corporation. The measure has been possible 

because these (non-bank) FMIs have been designated as systemically important financial market utilities and 

are therefore eligible for Federal Reserve accounts and services pursuant to section 806 of the Dodd-Frank Act.

78UNITED STATES

INTERNATIONAL MONETARY FUND
# FSAP Recommendation Developments

Housing finance

29 Reinvigorate the momentum 

for comprehensive housing 

market reform

Housing finance and the U.S. housing market have not been reformed comprehensively. Since the last FSAP, no 

legislative or executive action has been taken to reduce substantially the footprint of Fannie Mae and Freddie 

Mac (“Enterprises”).

As conservator, however, the (FHFA has required market-based credit risk transfers from the Enterprises to the 

private sector at an increasing level since 2013. Indeed, between their initiation in 2013 and June 2018, the 

Enterprises have transferred a portion of credit risk on approximately $2.5 trillion of unpaid principal balance 

(UPB) with a combined Risk in Force (RIF) of about $81 billion. The Enterprises have also jointly developed a 

common securitization platform. FHFA issued a final rule on the uniform mortgage-backed security in February 

2019 to align Enterprise policies and practices that affect cash flows of To-Be-Announced (TBA) eligible 

mortgage-backed securities. These requirements apply to both the Enterprises’ current offerings and to the 

new Uniform Mortgage-Backed Security (UMBS), which the Enterprises plan to begin issuing in June 2019. 

These Enterprise reforms have been accomplished administratively and have not reformed the entire housing 

finance system, which would require legislative action.

Since 2015, the FHFA has directed the Enterprises to fund the Housing Trust Fund and Capital Magnet Funds (as 

required by the 2008 Housing and Economic Recovery Act) by transferring a portion of total new acquisitions to 

these funds, which are administered by the Department of Housing and Urban Development (HUD) and 

Treasury Department, respectively. FHFA has the discretion to suspend the Enterprise allocations to the 

affordable housing funds, including the Housing Trust Fund, if the allocations are contributing to the 

Enterprise’s financial instability. 

The Senior Preferred Stock Purchase Agreements (PSPAs) between the Treasury and each Enterprise continue to 

provide financial strength for the Enterprises. They ensure the ability of the Enterprises to meet their financial 

obligations and are structured so that they will have minimal net worth as all profits above the capital reserve 

amount are transferred to Treasury each quarter. The capital reserve amount had been declining by $600 

million per year and was scheduled to decline to zero by January 2018. However, on December 21, 2017, FHFA 

and the Department of the Treasury agreed to reinstate a $3 billion capital reserve amount for each Enterprise 

to prevent draws on the PSPA due to fluctuations in the Enterprises’ income due to the normal course of 

UNITED STATES

INTERNATIONAL MONETARY FUND 79
# FSAP Recommendation Developments

business. Despite the new capital reserve, the December 2017 tax cuts caused the Enterprises to draw a 

combined total of $4 billion at the end of that quarter, reflecting value loss in deferred tax assets that followed 

enactment of the Tax Cuts and Jobs Act of 2017. 

In June 2018, FHFA issued a proposed rule on Enterprise capital requirements. The rule would implement a new 

framework for risk-based capital requirements and two alternatives for a revised minimum leverage capital 

requirement for the Enterprises. The capital requirements in this rule would continue to be suspended while 

the Enterprises remain in conservatorship. 

On March 27, 2019, the White House issued a Presidential Memorandum on Federal Housing Finance Reform. 

The memorandum establishes principles for reform and assigns responsibility to the Secretaries of the Treasury 

and HUD to develop plans for administrative and legislative reforms for the Enterprises and the housing 

programs of the federal government. As part of the process, the Treasury Department and HUD are required to 

consult with the leaders of other government agencies involved in housing finance and economic policy, 

including FHFA, and must submit the plan to the President for approval. 

80

UNITED STATES

INTERNATIONAL MONETARY FUND
UNITED STATES

STAFF REPORT FOR THE 2019 ARTICLE IV CONSULTATION—

INFORMATIONAL ANNEX

Prepared By The Western Hemisphere Department (in consultation with 

other departments)

FUND RELATIONS _______________________________________________________________________ 2

STATISTICAL ISSUES ____________________________________________________________________ 4

CONTENTS

June 6, 2019
UNITED STATES

2 INTERNATIONAL MONETARY FUND

FUND RELATIONS

(As of May 22, 2019)

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) 67,520.97 81.33

Reserve Tranche Position 15,499.34 18.68

Lending to the Fund

New Arrangements to Borrow 2,133.92

SDR Department: SDR Million

Percent of 

Allocation

Net cumulative allocation 35,315.68 100.00

Holdings 36,568.00 103.55

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

2019 2020 2021 2022 2023

Principal

Charges/Interest 0.55 0.55 0.55 0.55

Total 0.55 0.55 0.55 0.55

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 November 9, 

2018.
UNITED STATES

INTERNATIONAL MONETARY FUND 3

Article IV Consultation. The 2018 Article IV consultation was concluded on June 29, 2018 and the 

Staff Report was published as IMF Country Report No. 18/207. A fiscal Report of Observance of 

Standards and Codes was completed in the context of the 2003 consultation. The 2019 Article IV 

discussions took place in New York (March 5-7) and Washington D.C. (April 29-May 13). Concluding 

meetings with Chair Powell of the Board of Governors of the Federal Reserve System, and Treasury 

Secretary Mnuchin occurred on May 23 and May 28, respectively. The Managing Director, 

Ms. Lagarde, the Deputy Managing Director, Mr. Zhang, and WHD Director, Mr. Werner, participated 

in the concluding meetings. A press conference on the consultation was held on June 6, 2019. The 

team comprised Nigel Chalk (head), Yasser Abdih, Carlos Caceres, Emanuel Kopp, Daniel Leigh, 

Suchanan Tambunlertchai, Peter Williams (all WHD), Steve Dawe (LEG), and Diego Cerdeiro and 

Elizabeth Van Heuvelen (SPR). Mr. Mark Rosen (Executive Director), Ms. Patricia Pollard (Senior 

Advisor), and Ms. Deborah Crane (Advisor) attended some of the meetings. Outreach included 

discussions with Congressional staff, private sector representatives, and think tanks. Unless an 

objection from the authorities of the United States is received prior to the conclusion of the Board’s 

consideration, the document will be published.
UNITED STATES

4 INTERNATIONAL MONETARY FUND

STATISTICAL ISSUES

Statistical Issues. Comprehensive economic data are available for the United States on a timely 

basis. The quality, coverage, periodicity, and timeliness of U.S. economic data are adequate for 

surveillance. The United States adheres to the Special Data Dissemination Standard Plus and its 

metadata are posted on the Dissemination Standards Bulletin Board.

United States: Table of Common Indicators Required for Surveillance

(As of May 20, 2019)

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

2019 M3 April 26 M M M

Reserve/base money May 15 May 16 W W W

Broad money May 15 May 16 W W W

Central bank balance sheet May 15 May 16 W W W

Interest rates3 Same day Same day D D D

Consumer price index 2019 M4 May 10 M M M

Revenue, expenditure, balance and 

composition of financing4—general 

government5

2018 Q4 March 28 Q Q Q

Revenue, expenditure, balance and 

composition of financing4—central 

government

2019 M4 May 10 M M M

Stocks of central government and central 

government-guaranteed debt

2019 M4 May 6 M M M

External current account balance 2019 Q1 April 26 Q Q Q

Exports and imports of goods and 

services

2019 M3 May 9 M M M

GDP/GNP (1

st release) 2019 Q1 April 26 Q M M

Gross External Debt 2018 Q4 March 29 Q Q Q

International Investment Position6 2018 Q4 March 29 Q Q Q

1 Daily (D), Weekly (W), Biweekly (B), Monthly (M), Quarterly (Q), Annually (A); NA: Not Available.

2

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

3 Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, 

notes and bonds.

4 Foreign, domestic bank, and domestic nonbank financing.

5 The general government consists of the central government (budgetary funds, extra budgetary funds, and social 

security funds) and state and local governments.

6

Includes external gross financial asset and liability positions vis-à-vis nonresidents.
Statement by the Staff Representative on the United States 

June 21, 2019 

1. This statement reports on information that has become available since the staff report

was issued. It does not alter the thrust of the staff appraisal.

2. In November 2018, January 2019, and May 2019 the United States adopted

measures under various Executive Orders relating to Nicaragua, Iran and Venezuela.

These measures have been notified to the Fund on June 20, 2019 pursuant to the procedures

of Decision No. 144-(52/51) on restrictions on payments and transfers for the preservation of

national or international security and, consistent with these procedures, any exchange

restrictions arising from such Executive Orders would be unapproved at this time. 
Statement by Mr. Rosen, Executive Director,

 Ms. Pollard, Senior Advisor, and Ms. Crane, Advisor on the United States 

June 21, 2019 

The U.S. economy remains robust, entering its longest expansion on record and with 

encouraging trends in labor force participation, productivity and wage growth, notably for the 

lowest earners. Real GDP grew 3.1 percent in Q1 2019, well above private forecasts, with 

growth well supported by accelerating private investment, and by our tax and regulatory 

relief policies. In April 2019, the U.S. unemployment rate reached a 49-year low of 3.6 

percent, where it remained in May. Importantly, the Administration’s policies have drawn 

workers back into the labor force in numbers that have helped offset downward pressure 

from population aging and supported a downward trend in poverty, which is nearing its 

historic low. Consistently solid productivity gains—including annualized productivity growth 

of 3.4 percent in Q1 2019—have driven real wage gains. Real average hourly wages grew 1.4 

percent in the year to April 2019. Headline PCE inflation, the basis of the Federal Reserve’s 

inflation objective, rose 1.5 percent in the year to April 2019. Measures of consumer and 

business sentiment remain strong, indicating continued favorable economic prospects. 

In this context, we thank staff and management for the constructive engagement with our 

authorities during the Article IV consultation. We value the IMF’s surveillance role and the 

opportunity to discuss our economic policy priorities and reflect on staff’s recommendations. 

We broadly agree with staff on the importance of translating economic growth into improved 

social outcomes, of remaining vigilant about financial stability risks, and of bending the 

curve of our public debt over time. We take note that IMF staff find the Federal Reserve’s 

monetary policy to be appropriate at this juncture. We would like to elaborate on our 

perspective on these issues, including how our current policies are making inroads on key 

challenges, and areas where we see things differently from staff. 

Economic Outlook. We appreciate IMF staff’s recognition of the current strength of the U.S. 

economic expansion, but we are more optimistic than staff about the prospects for our tax 

and regulatory reforms to support growth in the coming years. We believe that latent 

productivity in the U.S. economy is considerably higher, previously held back by the deep 

slack of the Great Recession, an uncompetitive tax code, and costly regulation. We have now 

considerably reduced those drags. Moreover, the Administration expects that its policies to 

encourage work—such as reforms to social programs, strengthening skills training, and

supporting greater labor mobility— could support faster growth in the labor supply and

productivity. Taken together, these policies will boost real economic growth to about 3

percent annually this year and over the medium term. 
2

Staff’s analysis of the tax reform misses important prospective supply side effects. Staff 

argues that increased U.S. investment to date can be largely explained by demand-side 

effects, and posits that supply side effects from tax reform may have been blunted by rising 

corporate market power. The Administration believes that with regulations related to the tax 

reform still being finalized, the investment-enhancing impact of the reform is only in its 

initial stage. We expect continued strength in investment over time, rather than the near-term 

fading expected by staff. We are also more optimistic about the lasting impact of continuous 

efforts to reduce the regulatory burden on the private sector. 

Fiscal Sustainability. We recognize the long-term challenge of addressing our public debt 

and the Administration is approaching the issue on two fronts. First, our supply-side reforms 

will durably raise potential growth which will improve our debt-GDP dynamics. Second, the 

Administration’s planned reduction in non-defense discretionary spending, combined with 

healthcare and welfare reforms, will help stabilize public debt levels over the medium term 

and return the primary balance to a modest surplus position by 2024. Given continued low 

global interest rates and high U.S. GDP growth, we believe this has been an opportune time 

to create space for bold reforms to spur investment and private sector growth, avoiding the 

trap of a “new normal” of low GDP growth in the aftermath of the Great Recession. 

Social Outcomes. The Administration is focused on ensuring that the U.S. economy is 

working well for all Americans. We acknowledge the past trend of rising income inequality, 

while noting that technological innovation and globalization make this a challenge across 

advanced economies. We see stronger wage growth and increased labor force participation as 

fundamental to improving welfare and inclusion. Importantly, lower income employees are 

seeing faster wage growth than high-income earners—nominal wage growth for the lowest 

decile has grown faster than median wages for the past two years. In addition, the recent tax 

reform included provisions to support low-income workers and families, including an 

expanded Child Tax Credit and retention of the Earned Income Tax Credit. We are 

encouraged by recent trends in the supplemental poverty rate, which has declined from its 

post-Great Recession peak of 16.1 percent in 2011 to 13.9 percent in 2017, while real median 

household income has been on an upward trend in recent years. 

Our social welfare policies are focused on sensible reforms to move able-bodied individuals 

from welfare to work, and to focus the social safety net on those who need it most—the 

elderly, children and the disabled. We agree with staff that paid family leave and more access 

to quality child-care would better support working parents and the Administration has made 

proposals in its budget presentation to Congress. We also agree that healthcare inflation 

needs to be tackled, and the Administration has proposed policies to address the rise in drug 

costs in particular, to make inroads in this area. Some other Administration priorities in line 

with recommendations from IMF staff are skills training including formal apprenticeship 

programs and investments in science, technology, engineering, and math (STEM) education 

programs. 
3

We agree with the IMF that opioid abuse remains a major concern, and we appreciate the 

acknowledgement of federal, state, and local efforts in the Managing Director’s press 

remarks. The Administration is working aggressively to combat the opioid crisis. Since 

declaring a public health emergency in 2017, our authorities have been pursuing a strategy 

comprised of the following elements: (1) improving access to treatment and recovery 

services; (2) promoting use of overdose-reversing drugs; (3) strengthening our understanding 

of the epidemic through better public health surveillance; (4) providing support for cutting 

edge research on pain and addiction; and (5) advancing better practices for pain management. 

We agree with staff that scaling up successful local level programs could be a promising way 

forward, and note that the Administration is seeking to use federal programs to drive progress 

forward. 

External Sector and Trade. The U.S. current account deficit has been in the range of 2–2.5 

percent of GDP in recent years, as services and income surpluses partially offset a larger 

deficit in traded goods. The evolution of the current account balance over the medium term 

will depend on global demand for U.S. exports and the strength of the U.S. economy, 

including the continuing effect of the recent tax reform measures on U.S. competitiveness. 

The fundamental goal of our trade policies is to achieve free and fair trade globally. The 

Administration’s focus is on addressing unfair trade practices around the world that are 

impeding stronger and more balanced U.S. and global growth. To achieve balanced and fair 

trade, we must address the significant imbalances in global trade that stem in part from unfair 

trade policies and high trade barriers abroad. The President’s trade policies will set the stage 

for long-term economic growth, not only in the United States, but globally. 

The Administration places high priority on securing Congressional passage of the United 

States-Mexico-Canada (USMCA) Trade Agreement, which will modernize these important 

trading relationships and promote growth throughout North America. 

Monetary Policy. Our monetary authorities have stated that they will continue to execute 

U.S. monetary policy in a data-dependent manner, putting a premium on clear 

communication. In March 2019, the FOMC announced additional information on its plans for 

balance sheet normalization. Specifically, beginning in May, the Federal Reserve slowed the 

pace at which it is gradually reducing its holdings of Treasury securities, and the process of 

reducing the size of its balance sheet will conclude by the end of September. The Federal 

Reserve will continue to shift the composition of its balance sheet away from agency debt 

and mortgage-backed securities consistent with its longer run goal of primarily holding 

Treasury securities. 

We recognize the importance of ensuring clear communication by the Federal Reserve, but 

IMF staff’s suggestions in this area may not help. In recent years, we have seen that the 
4

median projections from the Summary of Economic Projections (SEP) can be misinterpreted 

as a firm plan for policy, despite policymakers’ communications to the contrary. However, 

we are not convinced that publishing a consensus forecast in a quarterly monetary policy 

report would remedy this problem. In fact, such a report could reinforce this 

misinterpretation, even if the report highlights risks around a central scenario. In our view, 

the minutes of the FOMC meetings, including the SEP materials, already provide a great deal 

of information about the outlook and the attendant risks and uncertainties.

We appreciate staff’s positive findings on the timeliness of the Federal Reserve’s ongoing 

review of its monetary policy strategy, but question staff’s recommendation on the operating 

framework. IMF staff call for “a more holistic picture” of the evolution of the operating 

framework, but most of the key decisions about the operating framework have already been 

announced, and the remaining technical details may not be of importance to the broader 

public. 

Financial Stability. We view financial stability risks as moderate and believe that our 

financial regulatory and supervisory institutions are responding appropriately to the evolution 

of risks. We agree with staff that U.S. banks are well capitalized and asset quality is 

generally good. We would not characterize financial conditions as being extremely loose, 

however. While term premia are near record lows, the spreads for a range of assets do not 

appear to us to be unusually narrow, nor is the VIX unusually low—particularly when using 

a longer time horizon than the past five years for comparison. The fundamental backdrop for 

the credit market is favorable and, while issuance of leveraged loans has grown, interest 

coverage ratios are generally in line with long-term trends and default rates remain quite low.

Investor appetite for leveraged loans is within historical measures and shows no evidence of 

concentration issues. From our perspective, the post-crisis period has been marked by a 

gradual return to normal levels of risk appetite after the record level of risk aversion in the 

financial crisis period. 

Nor do we believe that the tailoring changes made in recent years have inappropriately 

weakened standards. Recent tailoring of financial regulations has focused on better 

calibrating risk and compliance burden, especially for smaller, non-systemic financial 

institutions without diminishing the safety and soundness of the financial system. We believe 

that appropriately calibrated regulation is not mutually exclusive, nor inconsistent, with a 

prospering economy. The U.S. reforms maintain the key post-crisis reform efforts adopted 

for the largest and most complex banks: strengthened capital standards, robust supervisory 

regime –stress tests, stronger liquidity requirements, resolution planning, and a range of other 

enhanced prudential standards. The Federal Reserve’s stress testing (DFAST and CCAR) 

scenarios have been extremely tough in recent years, with several banks being forced to 

revise their capital plans. 
5

We have made important steps to build resilience in non-banks and have seen improved 

liquidity risk management in funds. The SEC introduced new liquidity requirements in 2016 

and stress testing for money market mutual funds as part of its 2014 money market mutual 

fund reforms. IMF staff’s recommendation that all asset managers be subject to liquidity 

provisions and stress testing is inconsistent with the aforementioned reforms and the business 

model of investment advisers, which generally act as agents and not as principals.

While there are concerns in the leveraged loan market, there are also mitigating factors, 

including the reduction of liquidity risks by the long lock-up periods of collateralized loan 

obligations (CLOs), significantly longer tenors compared to pre-crisis levels, and higher 

percentage of proportion of equity tranches for CLOs than pre-crisis. The Financial Stability 

Oversight Council (FSOC) has also provided an institutional mechanism to address the issue 

and coordinate among Council member agencies with supervisory or regulatory 

responsibilities, which continue to monitor the potential effects of developments in the 

leveraged lending market on their respective regulated entities and markets. The Federal 

Reserve, Federal Deposit Insurance Corporation, and Office of the Comptroller of the 

Currency review and assess risk in leveraged lending, as well as other lending types, through 

their Shared National Credit (SNC) Program. 

Moreover, the FSOC has issued proposed interpretive guidance that would prioritize an 

activities-based approach to addressing systemic risks to financial stability arising from 

nonbank financial companies rather than entity-based designations, using the latter only if 

identified risks cannot be appropriately addressed through an activities-based approach. Such 

an approach should more holistically address risks to financial stability and minimize the 

potential for competitive distortions in financial markets.

The bottom line is that the U.S. financial system is clearly stronger and much better 

positioned to withstand a shock or an economic downturn than it was before the crisis and 

that proposed regulatory reforms maintain the core protections for resilience in our banking 

and financial system. We look forward to more in-depth engagement with staff on financial 

sector issues through the Financial Stability Assessment Program (FSAP) for the United 

States, which is already underway.

Anti-Corruption. We value the IMF’s work on governance and anti-corruption and welcome 

the IMF’s analysis of the supply side of corruption in advanced economies, including the 

United States. We agree with staff on the importance of keeping the proceeds of foreign 

corruption out of the U.S. economy. We would underscore U.S. prosecutorial efforts and the 

use of sanctions designations and corruption-related advisories to communicate corruptionrelated risks and obligations to financial institutions, government, and non-governmental 

organizations. The Administration remains committed to working with Congress on 

legislation to strengthen the collection of beneficial ownership information.