IMF Director Says Fed ‘Will Have to Stay the Course’

An International Monetary Fund (IMF) director said the Federal Reserve may need to do more to slow lending.

IMF Managing Director Kristalina Georgieva told CNBC on Saturday (June 3) that the Federal Reserve will likely continue raising interest rates because too few banks have reduced their lending and because the jobs report released Friday (June 2) showed resiliency, CNBC reported Monday (June 5).

“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 during the interview.

Like the Federal Reserve, most major global central banks have worked to slow inflation by tightening their monetary policy, according to the report.

At the same time, global debt has risen to a near-record high, leading to concerns about leverage in the world’s financial system, the report said.

“We don’t yet see a significant slowdown in lending,” Georgieva said. “There is some, but not on the scale that would lead to the Fed stepping back.”

These comments come after a Labor Department jobs report said on Friday that employers added 339,000 jobs in May, as calculated on a seasonally adjusted basis — up from the revised 294,000 number seen in April.

The jobs report showed that Main Street firms are walking a bit of a tightrope as they add staff to meet demand while also expecting the economy to enter a recession in the next 12 months.

Inflation has been cited as the top challenge faced by these companies, with nearly 43% saying that is the case, according to “Main Street Health Q1 2023: Using Finance to Ease Recession Fears,” a PYMNTS and Enigma collaboration.

Georgieva’s comments also come about 10 days after Federal Reserve Bank of Richmond President Tom Barkin said that while demand is cooling after the Fed’s raising of interest rates, the labor market may remain tight due to the lingering effects of the pandemic and reduced immigration.

The Federal Reserve will meet June 13-14. Bloomberg reported May 18 that ahead of the meeting, officials seem more divided than ever on whether more interest rate hikes are needed.