The International Monetary Fund is cautioning against overexuberance in markets as investors look for central bankers to pull off a “soft landing” in their years-long inflation battle.
In its latest semi-annual Global Financial Stability Report, the IMF noted that markets have turned “quite optimistic” since the October edition, when investors were still recovering from spring turmoil in the banking sector.
Now, downside risks are receding, but the IMF is cautioning against complacency, noting that stretched valuations across a range of asset classes, geopolitical tensions, and rising debt levels could all pose problems if central bankers have to keep rates higher for longer to contain stubborn inflation.
“Confidence in a soft landing for the global economy is growing,” the IMF wrote in its report. “However, global inflation remaining persistently above those targets could challenge this narrative and may trigger instability.”
Story continues below advertisement
Specifically, the IMF said central bankers and other policymakers need to move cautiously as inflation eases, and push back …