The US economy is heating up despite the interest rate hikes by the Federal Reserve.
After another burst of growth in early 2024, the economy is on track to expand by at least 2% for the seventh quarter in a row. The last time the US pulled off such a feat was 20 years ago, in 2003-2004, according to a Dow Jones report.
New forecasts released by the International Monetary Fund show just how much of an outlier the US is.
The fund boosted its 2024 growth outlook for the US to 2.7%, up from 2.1% in January — more than double the pace of each of its Group of Seven counterparts.
While that’s helping support global growth, it also means the US is “slightly overheated,” IMF managing director Kristalina Georgieva has said — thanks in part to Washington’s fiscal stance, with the budget gap pushing toward 7% of GDP.
As President Joe Biden hailed America’s booming economy as the strongest in the world, global finance chiefs who convened in Washington last week had a different message: Cool it.
The push-back from central bank governors and finance ministers highlights how the sting from a surging US economy — manifested through high interest rates and a strong dollar — is ricocheting around the world by forcing other currencies lower and complicating plans to bring down borrowing costs.
Fed chair Jerome Powell on April 16 issued a warning that the long-anticipated interest-rate cuts will be delayed yet further due to disappointingly high US inflation readings.
That shift triggered a global government-bond selloff that sent yields to the highest levels in months and put pressure on a raft of currencies including the yen, which hit the lowest since 1990 against the dollar.
Japanese and South Korean authorities scrambled to talk up their currencies, Indonesia told state firms to hold off on big dollar purchases and Malaysia issued an intervention warning.
IMF chief economist Pierre-Olivier Gourinchas, earlier last week said the US budget stance creates “longer-term fiscal and financial stability risks for the global economy.”
German Finance Minister Christian Lindner was more blunt, calling out Biden administration industrial policies including the so-called Inflation Reduction Act, which offers subsidies for clean energy and the electric vehicle sector. A resurgent US dollar is exasperating central bankers and governments around the world, forcing them into action to relieve the pressure on their own currencies.
The greenback has gained against virtually every major peer in 2024, defying many on Wall Street who came into the year predicting a dollar selloff.
The US economy’s standout performance will be a major driver of global growth this year but could make America’s inflation problem harder to solve, according to the IMF.
The surprising resilience of the US economy would seem, on the face of it, to be good for corporations. But as the expansion ploughs ahead, pressures are forming beneath the surface to threaten some of the country’s riskiest companies.
The relentless string of hot economic data pushes back the expected timing of rate cuts, and even calls them into question. Now, struggling companies instead face an extended period of elevated borrowing costs, pinched cash flows and rising defaults.
“America is rising,” Biden has said. “We are the strongest economy in the world.”
Yet the renewed use of industrial policy, export controls and other protectionist measures is also stoking a backlash from trading partners.
Trade protection is likely only to intensify should former president Donald Trump win re-election. Trump’s plan to raise tariffs on US imports would spark a “free for all” in the global trading system that renders existing rules useless and hurts every economy, according to World Trade Organisation director-general Ngozi Okonjo-Iweala.
The IMF has boosted its 2024 growth outlook for the US to 2.7%, up from 2.1% in January — more than double the pace of each of its Group of Seven counterparts