IMF says fed will have to remain tight at 5-¼ to 5-½ rate until late 2024 warns of unpredictable consequences to banks
“Achieving a sustained disinflation will necessitate a loosening of labor market conditions that, so far, has not been evident in the data. To bring inflation firmly back to target will require an extended period of tight monetary policy, with the federal funds rate remaining at 5¼–5½ percent until late in 2024.”
“First, a higher path for interest rates could reveal larger, more systemic balance sheet problems in banks, nonbanks, or corporates than we have seen to-date. Unrealized losses from holdings of long duration securities would increase in both banks and nonbanks and the cost of new financing for both households and corporates could become unmanageable.”
Let’s pause here for a moment and explain in layman’s terms why higher interest rates result in losses in the market prices of existing bonds, i.e. “long duration securities” as referenced above………….
They’re nuts. World trade is crashing, and rates will follow.