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The International Monetary Fund indicated on Wednesday that interest rates may remain higher than what many investors are expecting as inflation still runs hot across much of the global economy.
“With core inflation still high and declining only slowly in many advanced economies, central banks may need to keep monetary policy tighter for longer than is currently priced in markets,” the IMF stated.
A move to keep rates higher for longer will in turn make debt more expensive and add additional strains to everyday consumers. The financial institution elaborated that borrowers might already be in hazardous financial positions and these elongated times of high interest rates could magnify problems which can lead to a surge of defaults.
The organization went on to add: “Yet, optimism about a soft landing of the global economy has fueled risk asset valuations since the April 2023 Global Financial Stability Report. A sudden reassessment of the monetary policy outlook following upside inflation surprises could challenge this narrative, resulting in a potentially sharp repricing of assets.”
The IMF went on to add that several sectors have started to show signs of weakness as the global credit cycle has started to turn as borrower debt repayment capacity diminishes.
On a separate note, Wednesday’s trading session has pushed major market averages (DJI), (SP500), and (COMP.IND) into the green early on.
