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The IMF is predicting more pain for global stocks as central banks tighten monetary policy

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  • The IMF is predicting more pain for global stocks as central banks around the world tighten their monetary policies.
  • "Risk assets such as equities could sell off further," an IMF official told CNBC. 
  • The Fed on Wednesday indicated hawkish plans for rate hikes this year to tame inflation.
  • For more stories visit Business Insider.

The International Monetary Fund is predicting more pain for global stocks as central banks around the world tighten their monetary policies to curb rising inflation. 

Less accommodative policies would come as the global economy enters 2022 in a "weaker position than previously expected" on the back of a still ravaging Covid-19 pandemic, the IMF warned in a new report Thursday.

"We could certainly see further tightening of financial conditions, and that means that risk assets such as equities could sell off further," Tobias Adrian, the IMF's financial counselor and director of monetary and capital markets, told CNBC Thursday.

On Wednesday, the Federal Reserve indicated hawkish plans for rate hikes this year to tame inflation, which is running at the fastest pace in 40 years. The central bank's policy statement opened the door for the Fed to start raising the benchmark rate as early as March.

In the press conference that followed, Chair Jerome Powell acknowledged that inflation may stay high for longer than expected and admitted that a rate hike at every meeting of the Federal Open Market Committee this year is not off the table. US stocks quickly gave up steep gains and finished mostly lower.

"This is hopefully not going to be disorderly, but it's going to be an orderly adjustment in terms of valuations," the IMF's Adrian told CNBC, adding that the reaction of the markets will largely depend on the central bank's clarity.

He also said an unexpected tightening of, for instance, 50 basis points, could spark a "substantial" sell-off. This pressure will likely spill over to the digital asset space, he said, which has exhibited high correlations with traditional financial markets.

Bitcoin dropped as much as 5% Thursday as cryptocurrencies fell across the board, with altcoins leading the way, on the back of the surprisingly hawkish comments from the Fed.

Ethereum, the second-biggest digital currency after bitcoin, was 3.66% lower at $2,430 — far off its record high of nearly $5,000 in November. The wider crypto market also slumped and lost about $100 billion in total market value overnight. 

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