Atlanta Fed Revises US Growth Outlook, Clashing with IMF Views

The Federal Reserve Bank of Atlanta revised its forecast for second quarter US GDP growth to 3% on Monday, from an earlier June estimate of 2.7% growth. The revision came on the heels of a positive manufacturing report from the Institute of Supply Management.

The Atlanta Fed is now looking for consumer spending, which accounts for about two-thirds of US GDP, to grow 3.5% in the second quarter, from an earlier estimate of 3.1%. The bank is also looking for growth in nonresidential equipment investment to gain 4.7% in the second quarter, revising its earlier estimate of 3%.

The Federal Reserve Bank of Atlanta’s upward revision to US growth expectations is in contrast to the views of the International Monetary Fund. The international agency last week revised down its expectation for US growth in 2017 to 2.1%, from an April growth estimate of 2.3%.

The IMF pointed out that, although the US is now in its third-longest stretch of economic growth since 1850, there are some “medium-term imbalances” that cast a cloud on the outlook. For instance, income growth is not even across all sections of society. And rising public debt casts a shadow, while the US dollar may be overvalued. “Most critically, relative to historical performance, post-crisis growth has been too low and too unequal,” the IMF said.

While the Trump administration has promised  policy proposals to boost growth, the IMF finds that “a fully articulated policy plan has yet to emerge.”  Boosting spending on public infrastructure and reforming the tax code have been chief aims of the Trump proposals. However, the IMF is discounting much of the economic impact of the proposals given the uncertainty of how the plans would be implemented.

With this backdrop, the IMF expects that growth will “rise modestly above 2% this year and next,” driven by consumer spending and an uptick in private investment.