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Key Points
- The IMF Managing Director Kristalina Georgieva has expressed concern with the federal reserve not pumping brakes on lending.
- Georgieva also stressed people being active in checking the world economic trends and being agile to adjust correctly as the trends change.
- Meanwhile, most global central banks are tightening their monetary policies to tame inflation rates.
IMF wants to see more federal banks pulling back from lending
In a report by CNBC, the International Monetary Fund is concerned that it is yet to see enough banks pulling back on lending, which could cause them to change course with their rate-hiking cycles.
In the report, IMF Director Kristalina Georgieva told CNBC:
“We don’t yet see a significant slowdown in lending. There is some, but not on the scale that would lead to the Fed stepping back.”
In a May report, the Federal Reserve showed a similar concern over lending and the current economic conditions. The report warned that lenders are worried about the capacity of Americans to continue borrowing, which has resulted in mid-size financial institutions in the country tightening the lending standards for households and businesses.
Fed’s loan officers added that they expect the lending issues to continue through next year as there are low economic growth forecasts already with deposit outflows increasing, which shows a reduced tolerance for risk.
Georgieva noted:
“I cannot stress enough that we are in an exceptionally uncertain environment. Therefore pay attention to trends and be agile, adjusting — should the trends change.”
She added that the positive jobs report shows that the U.S. could continue to hike rates further, which could eventually see the unemployment rate go beyond 4% or 4.5%, significantly higher than the current 3.7%.
The world economy continues declining
Georgieva’s comments come when global economies are shrinking, with a debt of over $305T being recorded. Multiple economies are also struggling with high inflation rates and increased living costs. The U.S. is just days after passing and signing the Fiscal Responsibility Act into a law that seeks to extend its debt ceiling.
The U.K. also struggles with high inflation rates following its deteriorating economy and the monumental Brexit failure. It is being tipped to follow Germany in entering a recession as its central bank continues to push interest rates higher to combat inflation, risking reversed economic growth.
The only unicorn left, the Chinese economy was tipped to resuscitate the world economy upon its reopening. However, it’s been performing dismally off late. It has also shown signs of slowing down, with its stock markets seemingly entering a bear market.