scorecardNo sign yet of a serious credit crunch - and that could mean there's no stopping the Fed's rate hikes, IMF boss says
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No sign yet of a serious credit crunch - and that could mean there's no stopping the Fed's rate hikes, IMF boss says

Zahra Tayeb   

No sign yet of a serious credit crunch - and that could mean there's no stopping the Fed's rate hikes, IMF boss says
Stock Market2 min read
EU Commissioner Georgieva holds a news conference in Brussels.    Thomson Reuters
  • There is no evidence yet of a sharp slowdown in US bank lending, according to IMF's Kristalina Georgieva.
  • "There is some, but not on the scale that would lead to the Fed stepping back," she told CNBC.

Wall Street warnings of a growth-crippling credit crunch in the US may be a bit overblown, if the latest commentary from the International Monetary Fund is any guide.

Three months since the collapse of Silicon Valley Bank, there's still no evidence of a sharp slump in bank lending - which suggests the threat to the economy isn't big enough to make the Federal Reserve stop fighting inflation, according to IMF chief Kristalina Georgieva.

The US central bank has raised benchmark interest rates by 500 basis points since early 2022 to tame consumer-price pressures, in its most aggressive monetary tightening campaign since the 1980s. Markets have seen increased speculation in recent months that the risk of a credit slump will prompt the Fed to pause its rate increases.

"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," Georgieva said in a CNBC interview on Saturday.

That, combined with a robust May payroll report, suggests the economy is still in good shape - which would allow the central bank to continue raising rates, she said, adding that the IMF expects the US to grow by 1.6% this year.

"The pressure that comes from incomes going up and in 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," Georgieva said.

Fears of a credit squeeze have come to the fore following the failures in recent months of three US lenders - Silicon Valley Bank, Signature Bank, and First Republic. These events fueled a wave of turmoil in the sector, fueling expectations that banks would pull back on lending as they turn more risk-averse.

Georgieva's view is at odds with with what money markets are pricing in. The Fed will pause its war against inflation, with 80.5% of traders betting the institution will leaves interest rates unchanged at this month's review, according to the CME FedWatch Tool.

"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.




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