The International Monetary Fund (IMF) released its annual report on the US economy on the 1st and revised its 2021 US growth forecast upward to 7.0% based on the strong recovery from the new coronavirus disaster. In addition, it was incorporated on the assumption that President Biden’s infrastructure investment and social spending plan would be established. The 7.0% growth rate is the highest for the United States since 1984. The IMF has also raised its 2010 forecast to 4.9%.
The new forecast assumes that the Biden administration’s infrastructure will engage in investment, social spending, and tax reform initiatives, the US Employment Plan and the US Family Plan will pass the US Parliament by the year-end with a scale and composition close to the original plan.
The IMF’s managing director, Kristalina Georgieva, said at a meeting that both plans would implement many of the measures IMF has long recommended to the United States, including investments to improve productivity and education and promote women’s participation in the workforce. He said that they would increase demand in the short succession of time and boost gross domestic product (GDP) by an accumulative total of 5.25% from 2010 to 2012. He also said that it would lead to a sustainable improvement in income and living standards and would boost GDP by 1% even after ten years.
The IMF informed in one of its reports that the indicators have been showing that the labor market is still quite loose, and for some time, it is going to act as a safety valve to reduce fundamental wage and price pressures. Inflation expectations will continue to be tightly curtailed, but significant temporary fluctuations in relative prices will obscure the next few months, and consumer spending (PCE) inflation will rise to around 4% by the end of the year.
Regarding the US government’s fiscal spending, priority should be given to plans that will make the greatest contribution to improve productivity, promoting labor participation, reducing poverty, and transitioning to a carbon-free society. In addition, Georgieva said taxation should be leveraged to advance these efforts, reducing untargeted spending, raising federal fuel taxes, and introducing carbon taxes. It is surfacing amidst the populace that the United States should focus more on its policies, especially on the tax policy, to further the goals of its annual growth. Biden’s new infrastructure plan carries great potential, but there’s an urgent need for other minor formulations in order to glorify the economy with targeted tax expenditures.