The US economy is in a period of accelerated growth, low unemployment and muted inflation, but significant concerns over recent trade policies could have damaging effects beyond the economy, and undermine the rules-based multilateral trading system, a new report has found.

A new evaluation of the US economy by the International Monetary Fund (IMF) says the near-term outlook for the US economy is one of strong growth and job creation. Unemployment is near levels not seen in 50 years, and growth is set to accelerate, aided by a fiscal stimulus, a recovery of private investment, and supportive financial conditions.

According to the evaluation, a slow but steady rise in wage and price inflation is expected as labour and product markets tighten. Core PCE (personal consumption expenditures) inflation is expected to rise modestly above 2% by mid-year.

Wages have been growing broadly in line with (relatively weak) labour productivity growth, leaving unit labour costs virtually unchanged over the past two years, the report notes. In the next several months, wages and unit labour costs are anticipated to increase at a modest pace.

Yet despite good near-term prospects, a number of vulnerabilities are being built-up. The planned expansion in the federal deficit at this stage of the cycle could trigger a faster-than-expected rise in inflation. That would be accompanied by a more rapid rise in interest rates that could increase market volatility both in the US and abroad, the evaluation found.

Directors also observed heightened policy uncertainty and medium-term vulnerabilities, including rising public debt, trade tensions, and income inequality. They stressed that developments and policy actions in the US have significant implications for the rest of the world, and encouraged the authorities to take that consideration into account in their policy decisions.

They raised significant concerns over recent trade policy proposals that could have damaging effects beyond the US economy, trigger retaliatory responses, and undermine the open, fair, rules-based multilateral trading system.

Directors urged the authorities to work constructively together with their trading partners to reduce trade barriers and resolve trade and investment disagreements without resorting to harmful unilateral actions.

The Trump administration yesterday (10 July) released a wide-ranging list of Chinese goods it proposes be hit with tariffs, with textiles, handbags and hats among the items included. The new list of items to be hit by a 10% tariff is on top of the $34bn worth of Chinese goods upon which the US began imposing tariffs of 25% last week.