The International Monetary Fund (IMF) does not yet see enough evidence of a significant slowdown in lending that would cause the U.S. Federal Reserve to alter its rate-hiking cycle, according to IMF Managing Director Kristalina Georgieva. While there has been some tightening of lending standards by banks, it is not on a scale that would prompt the Fed to step back. The Fed had warned in a recent report that financial institutions are concerned about future conditions, leading to tighter lending standards. The IMF emphasizes the exceptionally uncertain environment and advises paying attention to trends and being agile in response to potential changes.
The IMF’s assessment follows earlier comments by its Chief Economist Pierre-Olivier Gourinchas, who expressed concerns about the precarious situation of banks and the potential risks to the IMF’s world growth forecast. Many central banks, including the Fed, have taken aggressive measures to combat rising inflation, but global debt levels have reached a near-record high, leading to concerns about leverage in the financial system.
Georgieva suggests that given the resilient U.S. jobs report and the pressure from rising incomes and low unemployment, the Fed may need to continue with its current course or even consider further rate hikes. She projects the U.S. unemployment rate to increase to around 4.5%, up from the current 3.7%, as a result of future rate hikes.
Regarding the U.S. government passing a debt ceiling bill, Georgieva sees it as a broadly positive outcome. However, she expresses concerns about the repetitive debate surrounding the debt ceiling and suggests rethinking the approach to addressing this issue.
While the IMF has not observed a significant lending slowdown to prompt the Fed to change its course, the uncertain environment calls for careful monitoring of trends and the ability to adapt if necessary. The IMF also highlights the importance of managing high debt levels and the need for continued vigilance in addressing financial challenges.