The IMF is catching up to the prospect that Trump won't deliver tax cuts
The reason for the caution on the United States? The Fund's economists are warming up to the notion that Donald Trump's tax proposals, which I've argued for months had slim chance of passage despite Republican control of the presidency and Congress, will not in fact see the light of day in any substantial manner.
The IMF's slight downgrades leave its forecast for US economic growth this year and next at 2.2% and 2.3% respectively. The reasoning is most telling: "Given the significant policy uncertainty, IMF staff's macroeconomic forecast now uses a baseline assumption of unchanged policies, whereas the April 2017 [estimate] built in a fiscal stimulus from anticipated tax cuts."
Trump's fierce attacks on a number of prominent Republicans have cast further doubt on the possibility that a divided party can find enough unity to pass controversial legislation.
The IMF also has a warning for the Federal Reserve and other major world central banks that are directly linked to the sustainability of the global expansion: Persistently low inflation poses a significant, if counterintuitive, risk to the world economy.
"In many advanced economies, steady progress toward central bank inflation targets has been elusive, reflecting in part the slow reduction of spare capacity in labor markets," the IMF said.
Low inflation may sound like a good thing but not when it means wages are stuck in neutral for prolonged periods, denting purchasing power. "An environment of persistently subdued inflation (which could ensue if domestic demand were to falter) can carry significant risks by leading to a belief that central banks are willing to accept below-target inflation, thereby reducing medium-term inflation expectations," Fund economists caution.
US political noise aside, world prospects were brighter all around, the Fund said, with estimates for growth in Europe, Japan, China and Russia all getting bumped higher. Here's a full list of the IMF's October global growth forecasts:
