Wall Street has warned about a growth-crippling credit slowdown in the United States. However, it may be a bit overblown if the most recent commentary from the International Monetary Fund is any guide.
It has been three months since Silicon Valley Bank collapsed, and there is no evidence of a sharp slowdown in bank lending. According to Kristalina Georgieva, the managing director of the IMF, the threat it presents to the economy is not big enough for the Federal Reserve to stop fighting inflation.
There is no evidence yet of a sharp slowdown in US bank lending, according to IMF’s Kristalina Georgieva.
— unusual_whales (@unusual_whales) June 6, 2023
Since early 2022, the US central bank has raised benchmark interest rates by 500 basis points to tame rising prices for consumers. This is the most aggressive campaign to tighten money since the 1980s. Markets are experiencing increased speculation in the last couple of months that the risk of a credit drop will push the Fed to pause its rate increases.
In an interview for CNBC on Saturday, Georgieva said, “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.”
This, along with a strong payroll report for May, shows that the economy is still in good shape. She said this would allow the central bank to keep raising rates, and she added that the IMF thinks the US economy will grow by 1.6% this year.
Moreover, she said, “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.”
The failures of the three lenders in the US – Silicon Valley Bank, Signature Bank, and First Republic – in the past few months have made people worry about a credit squeeze. These events caused a wave of trouble in the sector, which led people to think that banks would stop lending as they became less willing to take risks.
Georgieva’s view goes against what the money markets think will happen with prices. The Fed will stop its fight against inflation. According to the CME FedWatch Tool, 80.5% of traders think the Fed will keep interest rates the same at this month’s review.
Additionally, she added, “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.”
