By
Bhushan Akolkar
April 17th, 2024
IMF director Kristalina Georgieva highlighted the stability of lending while urging the US Federal Reserve to consider further actions in response to an uncertain economic climate.
In a recent interview with CNBC, Kristalina Georgieva, the Managing Director of the International Monetary Fund (IMF), said that lending remains strong despite the uncertain economic environment affecting banks.
Georgieva’s remarks come as a reassuring voice amid concerns over the stability of lending in the current economic landscape. Despite the challenges faced by financial institutions, she underscored the resilience of lending activities.
The IMF chief urged the need to stay alert and flexible to adapt to changing trends. She further explained that despite concerns over the rigorous monetary policies adopted by major central banks worldwide to combat rising inflation, the IMF had not observed a significant decline in lending that would prompt the US Federal Reserve to alter its rate-hiking cycle.
“We don’t yet see a significant slowdown in lending. There are some, but not on the scale that would lead to the Fed stepping back,” Georgieva told CNBC in the interview.
US Banks Tighten Lending Standards for Households and Businesses
Her comments came in response to the Federal Reserve’s May report, which cautioned about banks adopting stricter lending protocols for households and businesses. These adjustments were prompted by concerns surrounding future conditions and the difficulties faced by mid-sized financial institutions in the United States.
The Federal Reserve’s loan officers anticipate these challenges persisting over the next year due to lowered growth forecasts, apprehensions regarding deposit outflows, and a decline in risk tolerance.
Highlighting the exceptional uncertainty surrounding the global economy, Georgieva stressed the importance of paying attention to trends and remaining adaptable. Previously, the IMF’s Chief Economist, Pierre-Olivier Gourinchas, expressed concerns about the precarious situation of banks, posing a risk to the organization’s projected global growth rate of 2.8% for this year.
While several major global central banks, including the US Federal Reserve, have implemented aggressive measures to tighten monetary policy, inflation remains a pressing issue. According to the Institute of International Finance (IIF), the world’s total debt has surged to approximately $305 trillion, reaching a near-record high. The IIF’s May report emphasized concerns about high debt levels and interest rates, raising the alarm about leverage within the financial system.
US Employment Rates Could Skyrocket to 4.5%
Considering the IMF’s assessment, Georgieva suggested that the Federal Reserve may need to take additional steps in conjunction with a resilient US jobs report on Friday last week.
“The pressure that comes from incomes going up and unemployment being still very, very low means that the Fed will have to stay the course, and perhaps, in our view, they may need to do a little bit more,” she said.
The IMF chief also stated during the interview, which took place in Dubrovnik, Croatia, that additional rate hikes by the Federal Reserve could result in the US unemployment rate exceeding 4%, potentially reaching 4.5%. The projection follows the rate’s recent increase to 3.7% in May, which marked the highest level since October last year.
Commenting on President Joe Biden’s recent passage of a debt ceiling bill, Georgieva acknowledged it as a generally positive outcome. However, she expressed concerns about the repetitive debate surrounding the debt ceiling, emphasizing the need to reconsider the approach to addressing this issue.