IMF chief sees 'narrowing path' to avoiding US recession

WASHINGTON -- The International Monetary Fund (IMF) chief said Friday that there is "a narrowing path" to avoiding a US recession, highlighting "significant downside risks."

"Based on the policy path outlined at the June FOMC (Federal Open Market Committee) meeting, and an expected reduction in the fiscal deficit, we expected the US economy will slow," IMF Managing Director Kristalina Georgieva said at a press conference on the annual Article IV consultation to review the US economy.

Georgieva said the IMF believes the path for the policy rate that the Federal Reserve has signaled, to quickly get the federal funds rate to 3.5 to 4 percent, is the correct policy to bring down inflation.

"We are conscious that there is a narrowing path to avoiding a recession in the US We also have to recognize the uncertainty of the current situation," said Georgieva.

The IMF chief said that the IMF is mindful of the risks to the US economy. "We are actually seeing very significant downside risks this year and especially next year," she said, noting that important shocks are buffeting the economy from Russia-Ukraine conflict and from lockdowns in China.

Meanwhile, the US economy enters this period of tightening with strong corporate and household balance sheets, and the accumulated significant savings are a "cushion," which do provide some incentive for the economy to function, Georgieva added.

Noting that the United States is a key engine for growth in the world economy, the IMF chief said when this engine slows down, that translates into impact "well beyond."

"We are particularly watchful on the implications of tightening of financial conditions in the US as well as exchange rate appreciation that is affecting emerging marketing and developing economies, especially those that have high level of dollar-denominated debt," she said.