Inflation trumps financial risks as central bank tightening set to continue
Despite broad warnings about the economic risks posed by recent stress in the banking sector, global monetary policymakers are keeping their focus squarely on inflation and the need to continue raising interest rates to tame it.
The call for caution has come from top officials at the International Monetary Fund who are worried about a global crack-up, from bond markets flashing recession signals, and from policymakers themselves who say they are monitoring the details of banking data and the mood of industry executives for signs of trouble.
Still, three of the world’s four major central banks at this point are on track to raise interest rates when they next meet, a step U.S. markets bet will set the stage for cuts in borrowing costs soon after as recession arrives.
In their latest World Economic Outlook, IMF officials on Tuesday trimmed their forecast for world growth, but said there were “plausible” scenarios, flowing from the recent failures of Silicon Valley Bank and Signature Bank in the U.S. and the forced merger of Credit Suisse, that could cut growth even deeper, while more serious banking problems and tighter credit could leave the global economy stalled altogether.
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