IMF: US economy has seen 75% of Fed hikes’ impact

According to the International Monetary Fund, the US economy has already experienced about 75% of the effects of tighter monetary policy, with the rest expected to pass through this year. The Eurozone has more transmission to come due to interest rate hikes starting later.

The US economy maintained stronger growth than expected since interest rates began rising in March 2022, though some strategists have spoken of a potential recession this year.

On the other hand; the Eurozone economy has fallen into stagnation, with the ECB beginning hiking in July 2022. Gopinath, the IMF’s Deputy Managing Director, noted that there are two lags in transmission: from monetary policy decisions to financial conditions and from financial conditions to the real economy.

In Europe, the transmission through banks is key, as the bank credit channel is about two thirds or three quarters in Europe, much more than in the U.S.

François Villeroy de Galhau, governor of France’s central bank, noted that there were two lags in transmission: from monetary policy decisions to financial conditions and from financial conditions to the real economy. He believed the transmission is more or less over in the first lag, as the bank credit channel is about two thirds or three quarters in Europe, much more than in the US

The second lag is more difficult to assess, as it strongly depends on various sectors. For example, real estate may have already experienced most of the transmission due to its sensitivity to interest rates. For other sectors, markets will wait to see.