By Fabiana Negrin Ochoa

An alternative policy mix in the U.S. could achieve the Trump administration's goals while avoiding negative repercussions, the International Monetary Fund says.

In a review of the U.S. economy, the IMF focused on the macroeconomic effect of policy shifts introduced in 2025 and their effects on the U.S., its trading partners and the global economy.

It concluded that a different approach would better advance the administration's aims without causing "negative outward spillovers."

That alternative would include replacing tariffs with a destination-based consumption tax and move toward a skills-based immigration system, the fund said in a report Wednesday.

At a press briefing, IMF Managing Director Kristalina Georgieva said the fund shares the administration's concern about the size of the U.S. trade and current-account deficit.

"We have held meetings with [Treasury] Secretary Bessent and [Federal Reserve] Chair Powell today. Very good meetings, very substantive," she said.

Addressing external imbalances would benefit both the U.S. and the global economy, she said, adding that policy distortions that contribute to those imbalances should be removed.

"In the U.S., though, tariffs have a negative supply effect, and this has added to goods inflation...which has been a headwind to ever stronger growth," Georgieva said.

The IMF expects higher tariffs to modestly narrow the U.S. trade deficit near term, while raising the personal consumption expenditures price index--the Federal Reserve's preferred measure of inflation--by around half a percentage point by early 2026 and reducing the level of output.

On monetary policy, the fund said the Fed was right to ease in 2025 as job growth slowed and there were few signs of second-round effects from tariffs likes broader price pressures.

Its baseline forecast is for the federal-funds rate to reach 3.25%-3.50% by the end of 2026, allowing the economy to return to full employment and 2% inflation by early 2027.

The report also stressed the importance of the Fed's autonomy amid concerns about political pressure.

"The Fed's policy credibility represents a highly valuable asset which should be carefully guarded, including by ensuring the Fed's monetary policy decisions remain independent," the IMF said.

It urged the preservation of the institutional framework for economic and regulatory policymaking, including fully resourcing the agencies responsible for key federal functions, such as providing economic statistics.

On the fiscal front, the fund called for a clear, frontloaded consolidation plan.

Under current policies, the general government deficit will remain at 7%-8% of gross domestic product, pushing debt to 140% of GDP by 2031, it said.

Overall, the IMF expects the U.S. economy to pick up somewhat in 2026, growing at a healthy 2.4% pace on a fourth-quarter over fourth-quarter basis, and to continue in a similar pace into 2027, Georgieva said.

"We also expect the unemployment rate to fall somewhat to around 4 percent," she added.

The IMF report didn't reflect the recent Supreme Court decision on tariffs, Georgieva noted, because it came after the fund had completed its findings and shared them with U.S. authorities.

The fund recognizes the importance of the developments and will analyze the economic implications, she said, adding there will be more on this topic in upcoming IMF reports: "So, stay tuned."

Write to Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com

(END) Dow Jones Newswires

February 26, 2026 00:01 ET (05:01 GMT)

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