Georgieva says a hawkish bias may be right, and economies at war face the biggest growth hit
IMF Managing Director Kristalina Georgieva said on Wednesday, October 7, 2026, that a prudently hawkish bias may now be right, with 10-year yields at their highest since 2007 in the United States, since 2009 in Germany and since 1996 in Japan.
Key takeaways
IMF Managing Director Kristalina Georgieva said in Singapore on Wednesday that a prudently hawkish bias may now be right, and that the largest hits to growth this year are in economies at war. She called recent rate increases by the Federal Reserve, the European Central Bank and the Bank of Japan highly appropriate.
"Now may be a good time for a prudently hawkish bias in many countries' monetary policy," she said.
In remarks after the speech, she said the most important task is price stability, and that central banks should communicate their resolve to maintain it. She did not ask for another increase. The three banks had already raised rates and spoken firmly, she said, and the path markets expect for rates is already repricing with those increases.
On September 16, the Federal Reserve decided to raise the range for its key rate by a quarter of a percentage point, to 3.75% to 4%. On September 10, the European Central Bank decided to raise its deposit rate, the rate it pays banks, by the same amount, to 2.50%. On September 18, the Bank of Japan decided to raise its guide for overnight borrowing by the same amount, to around 1.25%.
After a large rise this year, 10-year government bond yields are at their highest since 2007 in the United States, since 2009 in Germany and since 1996 in Japan, she said, and they are still climbing. The 10-year U.S. Treasury yield closed on Tuesday at 5.27%.
The 10-year yield rose to 5.27% from 4.18% at year-end
Those yields raise borrowing costs for emerging economies, she said, and the narrow additional interest on riskier bonds only partly offsets that pressure, for now.
Higher energy prices are pushing up inflation, policy rates and bond yields, she said, and she tied the prices to the war in the Gulf. The war with Iran began on February 28, when Iran shut the Strait of Hormuz, and she put it in its eighth month. Shipping through the strait remains under threat, she said, and gas from the Gulf is still badly disrupted.
High energy prices would likely last for some time even if the war ended soon, she said. Brent crude was at $101.74 early Wednesday in New York. Futures, she said, point to high oil prices through 2027.
Ukraine's war is in its fifth year, she said. She named that war, the Gulf war and others still going as the places taking the largest hits to growth this year.
She named three forces at once: the rapid arrival of artificial intelligence, energy prices that have stayed high, and record public debt.
"The AI building boom is inflationary. The energy and food shocks are inflationary," she said.
Tariffs, defense spending and high public debt can add to inflation too, she said, and memories of the recent high inflation are still fresh.
She said the new outlook will show that steady global growth has continued since the spring, with large differences behind that average. In July the IMF forecast world growth of 3.0% in 2026 and 3.4% in 2027, and global inflation of 4.7% this year.
The full World Economic Outlook is due Monday, October 12, at 10 p.m. Eastern time, which is 9 a.m. Tuesday in Bangkok. IMF and World Bank meetings in the city run from that Monday through Sunday, October 18.
Record debt
Global public debt is near its highest since the years after World War II, she said, and on track to soon exceed 100% of GDP. In April the Fiscal Monitor projected that the total would reach 100% of GDP in 2029, from just under 94% in 2025, a year before the 2030 date in the April 2025 edition.
She does not see decisive action in the advanced economies with the heaviest debts. She wants those governments to move, in some cases with steps that start soon, so central banks are not left to carry the load alone.
High-debt countries in the euro area face a widening gap between their government bond yields and Germany's, she said. She named France and Italy, and, to a lesser extent, Ireland and Portugal.
If AI earnings fall short
IMF research, she said, suggests that if artificial intelligence is done right it could eventually add up to half a percentage point to world growth each year. Over a decade, that would add an economy the size of ASEAN, the group of Southeast Asian nations.
Spending on AI, set against the size of the world economy, will reach and likely exceed what it cost to build the railroads, the electricity grids or the telecommunications networks, she said, and strong company earnings are supporting share prices for now.
Hyperscaler leverage is the debt the biggest cloud companies have taken on to build AI. The holdings in that warning are the U.S. stocks owned around the world.
"Should earnings fall short, however, hyperscaler leverage and large and growing global holdings of U.S. equities could turn a disappointment into a far-reaching shock."
Frequently asked questions
Is Georgieva calling for more rate hikes?
She did not ask for another increase, saying the Federal Reserve, the European Central Bank and the Bank of Japan had already raised rates and spoken firmly.
Which economies at war is she talking about?
She named Ukraine's war, now in its fifth year, the war with Iran, now in its eighth month, and other wars still going.
How high are bond yields?
Ten-year government bond yields are at their highest since 2007 in the United States, since 2009 in Germany and since 1996 in Japan, and the U.S. 10-year closed Tuesday at 5.27%.
What did she say about oil and the Gulf war?
The war with Iran began on February 28 when Iran shut the Strait of Hormuz, shipping through the strait remains under threat, and Brent crude was at $101.74 early Wednesday.
