IMF: No Significant Slowdown in Lending to Prompt Fed Rate Policy Change
The International Monetary Fund (IMF) has stated that it has not observed a substantial decrease in lending by banks that would prompt the US Federal Reserve to alter its rate-hiking trajectory.
According to the IMF’s Managing Director, Kristalina Georgieva, there has been some reduction in lending activity, but it is not significant enough to cause the Fed to reconsider its approach. Speaking to CNBC’s Karen Tso in Dubrovnik, Croatia, Georgieva emphasized that lending trends should be carefully monitored in the current exceptionally uncertain environment, with adjustments made if necessary.
The Federal Reserve’s recent report on banks in May highlighted concerns among lenders about future conditions. Troubles faced by mid-sized financial institutions in the US have led banks to tighten lending standards for both households and businesses. Loan officers at the Fed expect these issues to persist over the next year due to lowered growth forecasts, apprehensions regarding deposit outflows, and reduced risk tolerance.
The IMF’s comments on the pace of the global lending slowdown follow its Chief Economist’s earlier statement in April, in which Pierre-Olivier Gourinchas highlighted banks’ increasingly precarious position and the potential risk it poses to the organization’s world growth forecast of 2.8% for this year.
Many major central banks worldwide, including the US Federal Reserve, have implemented tighter monetary policies to curb rising inflation. Simultaneously, global debt has reached a near-record high of $305 trillion, as reported by the Institute of International Finance (IIF). The IIF’s May report expressed concerns about high debt levels, interest rates, and the potential impact on leverage within the financial system.
IMF Expects Further Rate Hikes by the Fed, Citing Resilient US Jobs Report
The International Monetary Fund (IMF) has indicated that, with no significant slowdown in lending to prompt a change in course, the US Federal Reserve may consider further rate hikes. IMF Managing Director Kristalina Georgieva noted that the combination of a strong US jobs report and increasing incomes puts pressure on the Fed to continue its current trajectory and potentially tighten monetary policy even more.
Georgieva projected that the US unemployment rate could rise beyond its current level of 3.7% to reach around 4.5% due to the anticipated rate hikes. She emphasized that the recent passing of a debt ceiling bill by the US government, signed by President Joe Biden, was a positive outcome given the circumstances. However, she expressed concerns about the repetitive debate surrounding the debt ceiling, suggesting the need to reconsider how it is approached in order to promote a more constructive and helpful environment.
The IMF continues to closely monitor economic developments and stands ready to provide insights and recommendations as global conditions evolve.
Credit: CNBC’s Jeff Cox, Elliot Smith contributed