US before 'very narrow path' to avert recession: IMF

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Given the numerous risks the United States is facing, the country only has a meager chance of averting an economic slump, the IMF warned on Tuesday.

"It's a very narrow path," IMF chief economist Pierre-Olivier Gourinchas said. "The current environment suggests that the likelihood that the US economy can avoid a recession is actually quite narrow." 

Even a "small shock" could tip the US economy into recession, he added.

The IMF drastically reduced the growth prediction for the United States this year from 3.4% in April to 2.3% in its most recent update to the World Economic Outlook.

Growth is even projected to slow down even further, with expectations that the US economy will only grow by 1%.

The US central bank has been sharply hiking interest rates to quell raging inflation, which is hampering economic growth.

Another hike is expected to be announced at the conclusion of the Federal Reserve's two-day policy meeting on Wednesday. Other increases are expected to follow suit in the coming months.

While the US labor market is now healthy, with an extremely low unemployment rate of 3.6%, Gourinchas said, he noted that the IMF anticipated that "as this monetary policy tightening continues, then it's going to progressively cool off also the labor market," leading unemployment to increase.

Though Current forecasts call for a slowing, there is no downturn, but there are "signs of an economy that is slowing down," Gourinchas told reporters. 

High inflation could become rooted in the US economy, according to the Federal Reserve, pushing the latter to further hike interest rates.

US government data released at the end of June showed that price increases that had held steady in the past 12 months ended in May, while the rise in consumer spending slowed sharply.

This, according to some, may give solace to consumers as a sign that the Federal Reserve's aggressive interest rate plans are beginning to have an effect in limiting the fastest uptick in inflation seen in more than four decades.

Compared to May 2021, the Personal Consumption Expenditures (PCE) price index rose 6.3%, the same pace as in the prior month, despite it rising 0.6% compared to April, according to the Commerce Department.

Meanwhile, the Fed has been for the past few months aggressively hiking interest rates to try and lower rising prices, but its efforts did not materialize in May, with consumer prices hitting four-decade highs. Consumer prices in May rose 8.6% and soared over what economists thought was the peak in March.

The Biden administration has tried to absolve itself from responsibility for the widespread inflation hitting the country, with Biden himself trying to cast the blame on Russia for the record food and gas prices affecting US citizens.

Energy prices have risen 34.6% over the past year, the fastest since September 2005, food prices have increased 10.1%, and the cost of fuel oil increased by more than two-fold, soaring 106.7% - the largest increase in the history of the consumer price index. A gallon of gas across the US reached $5 nationwide for the first time in history, setting a new record for oil prices.=