Around three quarters of the effects of tighter monetary policy have already fed through to the U.S. economy, according to an analysis by the International Monetary Fund.
“We have to recognize that there has been a lot of resilience in the economy despite the rate hikes that we have seen … our estimate is that for the U.S. about three quarters, or 75%, of the transmission has already gone through, and the rest will go through this year,” the IMF’s Deputy Managing Director Gita Gopinath said at a CNBC-moderated panel at the World Economic Forum on Tuesday.
There is more transmission still to feed through in the euro area, where interest rate hikes started later, she said.
The U.S. economy has maintained stronger growth than was widely expected since interest rates began rising in March 2022, though several strategists have spoken of a potential recession this year. The euro zone economy, meanwhile, has fallen into stagnation. The European Central Bank began hiking in July 2022.
“What is universally true is we have households and corporations with stronger balance sheets. And we’ve seen effects, but we’ve also seen resilience,” Gopinath said on the panel.
“Labor markets are slowing but at a much more gradual pace. Which is why I think at the IMF we feel that a soft landing scenario, the probabilities have come up quite a bit, because inflation has come down without needing that much of a loss in terms of economic activity.”
François Villeroy de Galhau, governor of France’s central bank, noted on the same panel that there were two lags in transmission: from monetary policy decisions to financial conditions, and from financial conditions to the real economy.
Source: CNBC
