Global stock and bond markets face a sell-off as central banks, including the Federal Reserve, may be forced to raise interest rates more than investors expect to tame inflation, a senior official said. head of the International Monetary Fund.
The odds of a market sell-off would be increased if monetary policy tightening is combined with a recession, said Tobias Adrian, director of the IMF’s Monetary and Capital Markets Department and former senior vice president of the Federal Reserve. Bank of New York. in a telephone interview on Tuesday.
Earlier in the day, the Washington-based fund cut its global growth forecast to the max since the early months of the Covid-19 pandemic and predicted even faster inflation, after Russia invaded Ukraine and that China has renewed virus lockdowns.
“Central banks may have to tighten more than what is currently expected, so there could be some surprises along the way,” Adrian said. “I think equities could see another big sell off. Bonds could sell off again. And yields could go up again. There could be another drop in sovereign fixed income rates. is safe at this time.
The IMF forecasts inflation for this year at 5.7% in advanced economies and 8.7% in emerging and developing countries, significantly higher than just a few months ago. The pace of consumer price increases is expected to slow to 2.5% and 6.5% respectively in each group of countries in 2023. The IMF has spoken of a growing risk that inflation expectations are no longer anchored, leading to a more aggressive central bank tightening.
In the United States and parts of Europe, inflation is accelerating at the fastest pace in decades, prompting central banks to tighten monetary policy faster than expected.
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