IMF Economist Warns of Side Effects From Sharp Monetary Policy Tightening — Says Financial Risks Have Increased
The International Monetary Fund’s (IMF) economic counselor has warned of the side effects of sharp monetary tightening. Noting that “Inflation is much stickier than anticipated,” he stressed that “financial risks have risen.”
IMF Economist’s Warning
Pierre-Olivier Gourinchas, Economic Counsellor and the Director of Research of the International Monetary Fund (IMF), shared his global economic outlook in a blog post published by the IMF Tuesday.
“The economic slowdown is most pronounced in advanced economies. Inflation is falling more slowly than anticipated,” he wrote. “Recent banking instability reminds us, however, that the situation remains fragile. Once again, downside risks dominate and the fog around the world economic outlook has thickened.” He added:
Inflation is much stickier than anticipated, even a few months ago … Core inflation, which excludes energy and food, has not yet peaked in many countries.
The IMF economist noted that “activity shows signs of resilience as labor markets remain very strong in most advanced economies,” adding that “our output and inflation estimates have been revised upwards for the last two quarters, suggesting stronger-than-expected aggregate demand.” He stressed: “This may call for monetary policy to tighten further or to stay tighter for longer than currently anticipated.”
While stating that he is “unconvinced” about the “risk of an uncontrolled wage-price spiral,” the IMF economic advisor said:
More worrisome are the side effects that the sharp monetary policy tightening of the last year is starting to have on the financial sector, as we have repeatedly warned might happen. Perhaps the surprise is that it took so long.
The IMF economic advisor explained that the financial sector had become too complacent about maturity and liquidity mismatches due to a prolonged period of low-interest rates and muted inflation. However, the tightening of monetary policy caused losses on long-term fixed-income assets and raised funding costs.
“Recent banking instability reminds us, however, that the situation remains fragile. Once again, downside risks dominate and the fog around the world economic outlook has thickened,” he described, elaborating:
We are therefore entering a tricky phase during which economic growth remains lackluster by historical standards, financial risks have risen, yet inflation has not yet decisively turned the corner.
Tags in this story IMF, IMF central banks, IMF economic advisor, IMF economist, IMF inflation, IMF monetary tightening, IMF policy, imf recession
What do you think about the view of the IMF’s economic counselor and the director of research? Let us know in the comments section below.
Russian Central Bank Attributes Recent Ruble Depreciation to Lower Forex Sales by Exporters ECONOMICS | 6 hours ago US Treasury to Attempt Coercing European Countries Into Implementing Sanctions Against Russia ECONOMICS | 12 hours ago
Image Credits: Shutterstock, Pixabay, Wiki Commons
Binance US to Delist Tron and Spell Tokens Amid Heightened Regulatory Pressure
Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.
Read disclaimerShow comments
More Popular News
In Case You Missed It
Following a Brief Fee Spike, Gas Prices to Move Ethereum Drop 76% in 12 Days
Transaction fees on the Ethereum network are dropping again after average fees saw a brief spike on April 5 jumping to $43 per transfer. 12 days later, average ether fees are close to dropping below $10 per transaction and median-sized … read more.
UAE Airliner Emirates to Launch NFTs and Experiences in the Metaverse Interest in Real Estate Investments in Spain Grew 400%, With Some Using Crypto and Stocks as Payment Method Economist Predicts the Fed’s Response to Inflation Will Push Crypto Higher Terra’s Algorithmic Dollar-Pegged Crypto UST Is Now the Third-Largest Stablecoin