Global Courant
The International Monetary Fund has yet to see enough banks withdraw their lending that would cause the US Federal Reserve to reverse course with its rate hike cycle.
“We don’t see a significant slowdown in lending yet. There is some, but not on the scale that would cause the Fed to back down,” IMF Director Kristalina Georgieva told CNBC’s Karen Tso in Dubrovnik, Croatia, on Saturday.
The Federal Reserve warned in a May banking report that lenders are concerned about future conditions as problems at US mid-market financial institutions caused banks to tighten lending standards for households and businesses.
The Fed’s lending officials added that they expect the problems to continue into the coming year due to lower growth forecasts and concerns about deposit outflows and reduced risk tolerance.
Georgieva told CNBC, “I can’t stress enough that we’re in an exceptionally uncertain environment. So pay attention to trends and be nimble and adapt – should the trends change.”
The IMF’s commentary on the pace of a slowdown in global credit comes after chief economist Pierre-Olivier Gourinchas told CNBC in April that banks are now in a “more precarious situation” that would pose a risk to the global growth forecast of the international organization of 2.8% for this year.
A majority of the world’s major central banks, including the US Federal Reserve, have aggressively tightened their monetary policies to curb skyrocketing inflation. Meanwhile, according to the Institute of International Finance, world debt has climbed to a near-record high of $305 trillion. The IIF said in its May report that high levels of debt and interest rates have led to further concerns about leverage in the financial system.
‘A bit more’
As the IMF does not yet see a significant slowdown in lending that would prompt the Fed to reverse its course, Georgieva said that coupled with a resilient US jobs report on Friday that it could rise further.
“The pressures coming from incomes rising and unemployment still very, very low means the Fed needs to stay on track and maybe in our opinion they should maybe do a little bit more,” she said.
She predicted the US unemployment rate would push beyond 4%, to 4.5%, on more rate hikes by the Fed after the rate rose to 3.7% in May, the highest since October 2022.
Speaking of the US government passing a debt ceiling bill signed into law by President Joe Biden this weekend, she said, “what was agreed, in the context (that) it was agreed, is broadly a good outcome.”
“Where the problem lies is that our repetitive debate on the debt ceiling is not very helpful in our view. There is room to rethink how we should approach it,” she added.
– CNBC’s Jeff Cox, Elliot Smith contributed to this report
