US bank executives are concerned about persistent inflation

Bank executives from USA expressed concern about the impact of a sustained acceleration of the inflation, which increases pressure on the Federal Reserve to accelerate plans to reduce the pace of its asset purchases.

Senior banking officials are increasingly concerned that inflation could affect borrowers’ ability to repay loans, slow US economic growth and destabilize stock markets.

Wells Fargo Chief Executive Charlie Scharf told a conference that the US central bank may have to take action sooner to address inflation concerns.

Goldman Sachs boss David Solomon said he expected a period of higher inflation.

The president of Bank of AmericaBrian Moynihan noted that his bank was conducting internal checks to ensure its portfolios could withstand a 1970s-style return to inflation.

“We have been doing it for three or four quarters, thinking that we would be at this point where inflation is real and it is out there,” Moynihan said at the Financial Services Conference of Goldman Sachs.

Annual inflation in the United States increased from 1.4% to 13.3% between 1960 and 1979, while the country’s economic growth stagnated.

The period had a marked impact on people’s lives, as the value of savings and the purchasing power of fixed income, such as pensions, were undermined.

Inflation in the United States is now more than double the flexible target of 2% per annum for the Federal Reserve (Fed).

The International Monetary Fund (IMF) He warned last week of intensifying inflationary pressures, especially in the United States, and said that US central bankers should focus more on inflation risks.

“There are arguments to say that they (the Federal Reserve members) should move faster than they have,” Scharf noted.

“Inflation is very, very real. Input prices are significantly higher in most industries. The labor shortage and wage increases are very real. The fact that this continues for several years is not that relevant, but it will certainly have an impact for the next year or more, ”he said.

The shadow of the pandemic

The central bank of the United States must be prepared to respond to the possibility that inflation will not recede in the second half of next year as most forecasts currently expect, Fed Chairman Jerome Powell declared last week.

Goldman Sachs’ Solomon anticipates inflation will be higher over a period of time, but does not expect the cost hikes of the 1970s to repeat itself, he said in an interview with CNBC.

“There is a reasonable chance that we will have inflation above trend for a period of time, but that does not mean it has to be like the one in the 1970s. You have to be prudent and manage risk appropriately,” he said.

Solomon acknowledged the “uncertainty” in global financial markets due to factors such as the emergence of the omicron variant and questions about the rate at which the Fed and other central banks will reduce asset purchases.

The Fed has begun reducing its monthly purchases of $ 120 billion of Treasuries and mortgage-backed securities at a rate that would put it on track to complete by mid-2022.

There is mounting pressure on the central bank to accelerate the end of the bond purchase program, which was launched in 2020 to stem the economic consequences of the pandemic.