IMF Warns Surging US Debt Poses 'Growing Stability Risk'
In preliminary findings released following its Article IV consultation, the IMF acknowledged that US policymakers are actively pursuing an ambitious domestic agenda — one centered on elevating living standards and expanding economic self-reliance. The agenda encompasses a push to reinvigorate domestic manufacturing, shrink trade deficits, cut dependence on foreign goods, scale up energy output, reduce reliance on undocumented labor, and pare back the federal government's footprint in the economy.
The Fund credited the US economy with a solid performance in 2025, underpinned by robust productivity gains — even as a late-year government shutdown created headwinds. Tariffs stoked goods inflation, yet services inflation continued its retreat, and the labor market held near full employment despite a deceleration in job creation. Financial conditions remained accommodative, equity markets hit record highs, and the federal deficit edged down marginally to 5.9% of GDP in fiscal year 2025.
Looking ahead, growth is forecast to accelerate from 2.2% last year to 2.4% in 2026, with tariff-driven inflationary pressures expected to dissipate in the months ahead. Unemployment is projected to hold steady at approximately 4% through 2026–2027.
The optimism, however, carries a heavy caveat. The IMF anticipates the budget deficit will breach 6% of GDP in the near term, with federal debt continuing its steady climb as a share of national output. In a particularly pointed warning, the Fund cautioned that sustaining an overall deficit of 7–8% of GDP could propel public debt to roughly 140% of GDP by 2031 — a scenario it urged policymakers to urgently address through a clearly defined, front-loaded fiscal consolidation strategy.
On the monetary front, the IMF indicated that the Federal Reserve could justifiably begin loosening policy during 2025 as job growth moderates and secondary tariff effects remain contained. The federal funds rate is expected to descend to 3.25–3.5% by the close of 2026.
IMF Managing Director Kristalina Georgieva struck a measured tone, affirming that the US economy is poised to remain resilient in the near term while underscoring that the relentless rise in public debt demands urgent and decisive corrective action.
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