The IMF/World Bank Meetings to Test Risk Appetite as Fed Hawks Swoon

US economic indicators beat expectations last week. Better-than-expected ISM Non-Manufacturing PMI numbers and the US jobs report gave the Fed the green light to deliver a 75-basis point rate hike in November. The IMF and the World Bank have been monitoring economic and central bank activity.

The Fed mantra has been unwavering since the Jackson Hole Symposium. In August, Fed Chair Powell warned of the Fed’s commitment to bringing inflation to target.

At the time, Powell also removed any hopes of a policy reversal by prewarning the markets of the need for a period of sustained below-trend growth with a weaker labor market to tame inflation.

The market reaction to the Jackson Hole speech was no different from the reaction to Friday’s jobs report. The NASDAQ 100 slid by 3.94% in response to the Powell speech. Last Friday, the NASDAQ slid by 3.80% in response to a jump in hiring and a fall in the US unemployment rate to 3.5%.

Things were different for the crypto market, which tumbled by $78 billion in response to Powell’s speech and $11.5 billion in response to the jobs report. Notably, the jobs report gives the Fed wriggle room to front load rates more aggressively. US inflation figures had more impact on the crypto market.

IMF and the World Bank Issue Warnings to Central Banks and Governments

Friday’s jobs report followed warnings from the World Bank of the impact of synchronized interest rate hikes on the global economy.

In September, the World Bank issued a press release highlighting the risks that central banks pose to the global economy.

The World Bank noted that,

“Central Banks around the world have been raising rates this year with a degree of synchronicity not seen over the past five decades.”

Significantly, the World Bank added,

“The current expected trajectory of interest rate increases and other policy actions may not be sufficient to bring global inflation back down to levels seen before the pandemic.”

The fallout from an aggressive shift in central bank monetary policy goals is not only reflected in the global equity and crypto markets but also in the bond markets.

More recently, the International Monetary Fund (IMF) also stood out, criticizing the UK government’s tax cuts that sent the GBP/USD to a record low of $1.03565 on September 26.

With the World Bank and the IMF sounding the alarm bells, this week’s IMF/World Bank Meetings get underway at a difficult time.

IMF/World Bank Meetings Schedule for the Week Ahead

Today, the IMF/World Bank Meetings get underway and extend until October 16. Following recent warnings from the World Bank and the IMF, commentary from the meetings will garner more interest than usual.

The first joint seminar event is ‘The Way Forward: Addressing Multiple Crisis in an Era of Volatility.’

Other events of interest include but are not limited to,

• IMF Press Briefing: World Economic Outlook (Oct-11),
• Analytical corner: Surging Energy Prices in Europe in the Aftermath of the War (Oct-11).
• IMF Press Briefing: Global Financial Stability Report (Oct-11).
• 2022 Annual Meetings Opening Press Conference (Oct-13).
• IMF Seminar: Debate on the Global Economy (Oct-13).

With the Fed and the ECB eying 75-basis point rate hikes in November, more gloomy warnings are likely. We expect market sensitivity to comments from the meetings.