The International Monetary Fund (IMF) warns of impending “substantial” stock selloffs and steep drops in home prices.
The International Monetary Fund has warned that central banks’ pandemic-induced extremely cheap money policies would soon come to an end, causing a significant correction in stock markets and a dramatic drop in home prices.
Liquidity would dry up and large selloffs would occur across the board in real and intangible asset classes if central banks hiked rates (as the Fed implied in recent weeks) to contain inflation (which is at a 30-year high of 5.3 percent in the United States).
The Federal Reserve has maintained ultra-low interest rates (it last raised rates in 2018), which, together with the federal government’s successive stimulus packages, has resulted in artificially high equities and housing values. In its Semi-Annual Financial Stability Report, the IMF predicted that once the Fed tightens its monetary policy, housing prices might fall by up to 14%. Housing prices in emerging nations are expected to drop by up to 22%, according to the report. In the United States, the interest rate is 0.25 percent.
Tobias Adrian of the IMF’s Monetary and Capital Markets Department raised concern about the high valuations in the equity and housing markets in an interview with Bloomberg. Adrian was concerned that, due to unprecedented inflationary pressures, central banks would be obliged to raise rates, causing global economic uncertainty. The S&P 500 index, which closed at 4350.65 on Tuesday, is projected to fall after the easy money runs out, though the IMF did not predict this.
The IMF has labeled the cryptocurrency trading market as unregulated, warning that if it is allowed to its own devices, global financial stability will be jeopardized. Despite the fact that the cryptocurrency market (now valued at $2 trillion) is still a small one, the IMF voiced severe worries about how cryptocurrencies are traded and emphasized the need for an organized approach.