As Central Banks Adjust Monetary Policies, IMF Signals Further Market Sell-Off: CNBC

The International Monetary Fund has warned of more market sell-offs as central banks attempt to combat higher inflation and ease back on pandemic stimulus measures.

Market players started 2021 on an optimistic note, predicting some economic momentum amid the easing of COVID-19 restrictions, which would likely boost stocks. 

However, since Russia invaded Ukraine, that outlook has worsened, giving supply chain shocks and higher energy prices. “There is certainly a risk of further sell-offs,” Tobias Adrian, director for monetary and capital markets at the IMF, told CNBC.

“The intended consequences of monetary tightening is to tighten financial conditions to slow down economic activity, and I would not be surprised if we were to see a certain amount of readjustment of asset valuations going forward, and that could be in equity markets as well as in corporate bond markets and sovereign markets,” he added.

The U.S. Federal Reserve expects to hike interest rates six more times in 2022, while the European Central Bank confirmed ending its asset purchase program in Q3.

“The risk is rising that inflation expectations drift away from central bank inflation targets, prompting a more aggressive tightening response from policymakers,” the IMF said in its latest World Economic Outlook report.

The IMF said high inflation would be around for longer than previously anticipated in its latest economic assessment. It is also estimated that the inflation rate will reach 7.7% in the United States this year and 5.3% in the eurozone.

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