According to staff projections, cuts to Medicaid and food assistance, combined with the pass-through of higher tariffs into consumer prices, will result in materially lower real disposable income for the bottom third of the income distribution and an increase in the poverty rate.The fund further warned that after 2029 — when more progressive income tax provisions are scheduled to expire — the combined effect of current policy settings is expected to leave the bottom half of the income distribution with lower real disposable income overall. The implication is that the impact is not merely cyclical but structural.

The administration’s strategy has centred on increasing economic self-reliance through higher tariffs, expanded domestic manufacturing incentives, tighter immigration enforcement and deregulation.

The IMF estimates that higher tariffs will raise revenue equivalent to roughly three-quarters of a per cent of GDP in the near term and modestly reduce the trade deficit. However, they also represent a negative supply shock.

The IMF projects that tariffs will raise the level of the personal consumption expenditure price index by about half a per cent by early 2026 and reduce the level of output by a similar magnitude.While the inflationary impulse from tariffs is expected to wane over time, the initial price effects fall directly on consumers — disproportionately affecting lower-income households that spend a larger share of income on goods. Stricter immigration policies are also projected to dampen labour force growth. The IMF estimates that reduced inflows of foreign-born workers could lower overall economic activity by around 0.4 per cent by 2027, while adding modest upward pressure on wages and prices in sectors reliant on immigrant labour, such as agriculture and construction.

Despite those concerns, the broader economic picture remains comparatively strong. Real GDP grew 2.2 per cent in 2025 on a fourth-quarter to fourth-quarter basis, broadly in line with earlier forecasts, and inflation pressures have eased. Core personal consumption expenditure inflation is projected to fall back to two per cent by early 2027. Unemployment stood at 4.3 per cent in January and is expected to remain close to 4 per cent over the next two years.

The IMF judged it appropriate for the Federal Reserve to ease policy during 2025 as job growth slowed and tariff effects did not trigger broader second-round inflation pressures. Under staff projections, the federal funds rate is expected to settle in a range of 3¼ to 3½ per cent by end-2026, with only limited scope for further cuts unless labour market conditions weaken materially.

However, the fund cautioned that resilient headline indicators should not obscure mounting medium-term vulnerabilities. While the federal deficit narrowed slightly from 6.3 per cent of GDP in fiscal year 2024 to 5.9 per cent in fiscal year 2025, it is projected to widen again and remain above six per cent in the coming years. General government deficits are expected to stay in the seven to eight per cent of GDP range, pushing general government debt to roughly 140 per cent of GDP by 2031.

Although the IMF stressed that the risk of sovereign stress in the United States remains low, it warned that the upward debt trajectory and increasing reliance on short-term financing pose growing stability risks to both the US and the global economy. To stabilise debt, staff called for a front-loaded fiscal consolidation sufficient to generate a primary surplus of about one per cent of GDP — an adjustment of roughly four per cent of GDP relative to the current baseline. That, the fund said, would require going beyond discretionary spending cuts and instead involve higher federal revenues and structural reforms to entitlement programmes, alongside targeted protections for lower-income households.