OECD issues monetary policy warning for US economy

The Organization for Economic Co-operation and Development (OECD) warned that easing monetary policy too quickly in the US risks inflation remaining persistently above target levels, but implementing monetary policy too restrictively could slow down economic activity. The organization published its report titled "OECD Economic Surveys: US". Accordingly, economic growth in the US continued solidly due to strong wage increases and a resilient labor market. Although inflationary pressures have eased in the country, services inflation continues to be high, even above pre-pandemic levels. In this context, the OECD warned that easing monetary policy too quickly in the US risks inflation remaining persistently above the targeted 2 percent, but implementing monetary policy too restrictively could slow down economic activity. According to the report, easing monetary policy would be appropriate when there are clearer signs that inflation has declined permanently in order to meet the US Federal Reserve's (Fed) 2 percent target. Fiscal consolidation is also needed to reduce inflationary pressures in the US. The budget deficit reached 8 percent of gross domestic product (GDP) in 2023, and has recently widened due to lower-than-expected tax revenues and higher spending on mandatory social programs. The OECD recommended that authorities in the United States, where the public debt-to-GDP ratio is at a historic high, begin to steadily consolidate public finances in fiscal 2025 and front-load adjustments in light of strong cyclical conditions. The OECD also warned that the public debt-to-GDP ratio in the U.S. is high compared to many OECD countries and is expected to rise further. The U.S. economy could grow by 2.6 percent this year According to the report, the U.S. economy, which has remained resilient despite the increase in policy rates, is expected to grow by 2.6 percent this year. If core inflation remains high, the growth outlook could change downward. The country’s economy is projected to grow by 1.8 percent in 2025.