WASHINGTON: The International Monetary Fund estimated Tuesday that the US economy will pick up only modestly in 2016 after a mild gain this year, thanks to low energy prices and an improving housing market.
The IMF cut its US growth forecast for next year to 2.8 percent, 0.2 percentage points lower than it predicted just three months ago.
It said in its new World Economic Outlook that the world's largest economy, which grew 2.4 percent in 2014, would expand at an annual rate of 2.6 percent this year.
"The recovery is expected to continue in the United States, supported by lower energy prices, reduced fiscal drag, strengthened balance sheets, and an improving housing market," the IMF said, predicting these positive factors would offset a decline in exports driven by the strong dollar.
Growth beyond 2016, however, likely will slow to a lackluster 2.0 percent rate because of the aging population and weak productivity growth, the IMF said.
On the US labor market front, conditions remain favorable to support more job growth, as the unemployment rate continues to fall from 6.2 percent in 2014, the Fund said.
It projected a 5.3 percent jobless rate for all of 2015 -- it already held at 5.1 percent for the second straight month in September -- and a fall to 4.9 percent in 2016.
The Federal Reserve, which plans to begin tightening credit this year after holding its key interest rate at zero since late 2008, needs to find the appropriate timing and pace of liftoff, the 188-nation institution said.
"The Federal Open Market Committee's decisions should remain data-dependent, with the first increase in the federal funds rate waiting until there are firmer signs of inflation rising steadily toward the Federal Reserve's 2 percent medium-term inflation objective, with continued strength in the labor market," the IMF said.
It projected annual US inflation in 2015 to decline to 0.1 percent. "There is little evidence of accelerating wage and price pressures," said the IMF, which has repeatedly called on the Fed to wait until 2016 to raise rates to avoid derailing the economy's recovery from the worst recession since the Great Depression.
Given the recent strong bout of volatility on the financial markets, the Fund said, the Fed should be careful about how it communicates its monetary policy.
A further "sizable" strengthening of the dollar is expected after the greenback's appreciation over the past year or more. Not only is US domestic demand stronger than that of its trade partners in the advanced economies, but its monetary policy is diverging with other countries, which have not signaled tighter credit is looming.
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