Stay the course in tightening until inflation gets back to target
In the spring of 2023, the world's financial stewards gathered in Washington and reached a cautious consensus: the banking tremors that had shaken Silicon Valley and Switzerland were subsiding, but the deeper fever of inflation had not broken. The IMF, speaking through its capital markets director, urged central banks to hold their course — tightening until price pressures yield — even as shadows gathered over venture capital, technology, and commercial real estate. It was a moment of managed relief, not triumph: the immediate crisis contained, the longer reckoning still unfolding.
- Weeks after Silicon Valley Bank and Credit Suisse collapsed, IMF officials declared the acute financial panic contained — but the word 'contained' carried the weight of ongoing vigilance, not victory.
- Core inflation in both the U.S. and eurozone was still running hot, and in America it had actually ticked upward, signaling that the underlying price pressure was proving more stubborn than policymakers had hoped.
- The IMF's own Financial Stability Report described the most genuine systemic stress since 2008, with years of cheap money having quietly built up vulnerabilities in venture capital, tech, and commercial real estate now exposed by rising rates.
- Central banks were urged to stay the course on tightening, even as the IMF acknowledged that rates could overshoot, inflation could persist, and further episodes of financial turmoil — in banks and shadow institutions alike — remained plausible.
- Global GDP growth was trimmed to 2.8%, and the financial tightening already triggered by the March bank failures was seen as doing some of the work for central banks — a grim silver lining in a darkening economic outlook.
When the IMF and World Bank convened their spring meetings in Washington in April 2023, the mood had shifted. The collapse of Silicon Valley Bank and Credit Suisse weeks earlier had sent shockwaves through global markets, but by the time officials gathered, the immediate panic had receded. Tobias Adrian, head of the IMF's monetary and capital markets department, offered a measured verdict: the financial stability risks had been contained, thanks in large part to swift action by the Federal Reserve and FDIC, whose emergency lending facilities and deposit guarantees had prevented a broader cascade.
With the banking crisis no longer dominating the agenda, inflation reasserted itself as the central preoccupation. Core consumer prices in both the United States and the eurozone remained stubbornly above target — and in the U.S., the core CPI had actually risen, a discouraging sign. Adrian's message to central banks was unambiguous: keep tightening until meaningful progress is made. Yet he was candid about the uncertainty ahead. Rates might need to go higher than anticipated. Inflation might prove more durable. The road was narrow.
The IMF's Financial Stability Report offered a sobering backdrop, describing the most significant systemic stress since 2008. Years of near-zero interest rates had allowed vulnerabilities to quietly accumulate — particularly in venture capital, technology, and commercial real estate, all sectors now feeling the pressure of tighter money. Adrian did not rule out further turbulence in both traditional banks and the broader shadow financial system.
The IMF estimated that the financial tightening already set in motion by the March bank failures would trim roughly half a percentage point from global GDP growth — a figure that, paradoxically, offered some relief, since it meant central banks might not need to push rates quite as hard. Still, the institution lowered its global growth forecast to 2.8% for the year, and the risk of recession in advanced economies had grown. The banking crisis had been managed, but the larger challenge — threading the needle between crushing inflation and avoiding a hard landing — remained very much unresolved.
In the marble halls of Washington where the International Monetary Fund and World Bank gathered for their spring meetings in April 2023, the conversation had shifted. The banking system, which had convulsed just weeks earlier with the collapse of Silicon Valley Bank and Credit Suisse, was no longer the main source of anxiety. Instead, the assembled central bankers and finance officials were fixated on a different threat: the stubborn persistence of inflation.
Tobias Adrian, who directs the IMF's monetary and capital markets department, delivered the institution's assessment with measured confidence. The financial stability risks that had seemed so acute in March, he told Yahoo Finance, had been contained. The Federal Reserve and FDIC had deployed their crisis management tools effectively—the emergency lending facilities and deposit guarantees that prevented Silicon Valley Bank's failure from triggering a broader collapse. "As a result, monetary policy can focus on fighting inflation and that's a desirable outcome," Adrian said. The implication was clear: central banks could now return to their primary mission without the distraction of a systemic financial meltdown.
But the inflation picture remained troubling. In both the United States and the eurozone, price pressures were running well above target. The U.S. core consumer price index—which strips out the volatile swings in food and energy costs—had actually risen, a sign that the underlying inflation was not cooling as quickly as policymakers had hoped. Adrian's prescription was straightforward: central banks needed to keep raising interest rates until inflation came back down. "Stay the course in terms of tightening until there is significant progress of getting inflation back to target," he said. Yet he also acknowledged the precariousness of the moment. Interest rates could go higher than expected. Inflation could prove even more stubborn. The path forward was uncertain.
The banking turmoil had not disappeared entirely from the agenda. The IMF's Financial Stability Report, released that same week, painted a picture of a financial system under genuine stress for the first time since the 2008 crisis. Years of rock-bottom interest rates had allowed vulnerabilities to accumulate in the shadows of the traditional banking system. Venture capital firms, technology companies, and commercial real estate operators had all become dependent on cheap money. Now that the Federal Reserve was tightening, these sectors were feeling the squeeze. Adrian acknowledged that more trouble could be coming. "I would not be surprised if there were other episodes of turmoil both in banks and nonbank financial intermediaries," he said.
The IMF estimated that the financial tightening triggered by the March bank failures would shave roughly half a percentage point off global GDP growth. That was actually a relief of sorts—it meant central banks would not need to raise rates as aggressively as they otherwise might have, since the financial system itself was already doing some of the tightening work for them. Still, the outlook had darkened. The IMF lowered its forecast for global economic growth to 2.8% for the year, down slightly from 2.9% projected just three months earlier. The risk of recession in advanced economies had grown. The banking crisis had been contained, but the broader economic picture remained fragile, caught between the need to crush inflation and the danger of tightening too hard and triggering a downturn.
Citas Notables
Financial stability risks have been contained so far and hopefully that will remain the case. As a result, monetary policy can focus on fighting inflation and that's a desirable outcome.— Tobias Adrian, IMF Director of Monetary and Capital Markets
I would not be surprised if there were other episodes of turmoil both in banks and nonbank financial intermediaries.— Tobias Adrian, IMF
La Conversación del Hearth Otra perspectiva de la historia
If the banking crisis is truly contained, why does Adrian keep saying he wouldn't be surprised by more turmoil?
Because contained doesn't mean solved. It means the immediate contagion was stopped. But the underlying conditions that created the crisis—years of cheap money, leverage, mismatches between what people owe and what they own—those are still there. He's being honest about the limits of what the Fed's toolkit can do.
So the real problem is inflation, not banks?
The real problem is that they're tangled together. Central banks need to raise rates to fight inflation, but raising rates is what stressed the banks in the first place. They're trying to thread a needle.
What happens to venture capital and commercial real estate?
Those sectors gorged on cheap capital for years. Now that money is expensive and scarce. Some deals won't happen. Some companies won't get funded. Some buildings won't get built or refinanced. The pain is real, but it's diffuse—not as visible as a bank failure, but widespread.
Is the IMF saying we're heading for a recession?
They're saying the risk has grown. They lowered their growth forecast. They're not predicting catastrophe, but they're not confident either. It's a wait-and-see moment.
What does Adrian want central banks to do?
Keep raising rates despite the financial stress. He thinks that's the only way to get inflation under control. It's a bet that the financial system can absorb the pain without breaking.