Against the Odds: Central Banks’ Encouraging Economic Outlook

Central banks have a surprisingly optimistic outlook on the economy, according to recent news articles. The Federal Reserve officials are more optimistic that the US can avoid a recession, despite signaling two more interest rate hikes may be coming. The IMF issued modest upgrades to the economies of the United States and Europe, which have proved more resilient than expected even with much higher interest rates and the shock of Russia’s invasion of Ukraine. The macroeconomic outlook continues to show encouraging signs in a challenging environment, and the euro area begins the year with a positive tone.

However, the IMF warns that the global economy is “entering a perilous phase during which economic growth remains low by historical standards and financial risks have risen, yet inflation has not yet decisively turned the corner”. The IMF also notes that risks to bank and nonbank financial intermediaries have increased as interest rates have risen.