US bank executives worry about high and sustained inflation | Investment News

NEW YORK (Reuters) – U.S. banking executives on Tuesday raised concerns about the impact of a prolonged period of rising inflation, adding to pressure on the Federal Reserve to accelerate plans to slow the pace of its asset purchases.

Senior bankers are increasingly concerned that rising inflation will 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 U.S. central bank may need to act faster to address inflation concerns. Goldman Sachs CEO David Solomon said he anticipates a period of higher inflation.

Bank of America CEO Brian Moynihan said his bank was performing internal health checks to ensure its portfolios could withstand a return to 1970s inflation.

“We’ve been doing it for three or four quarters now thinking we’d be in that place where the inflation is real and there,” Moynihan said at the Goldman Sachs financial services conference.

US annual inflation rose from 1.4% to 13.3% from 1960 to 1979, while the country’s economic growth stagnated.

This had a marked impact on people’s lives, with the value of savings and the purchasing power of fixed incomes like pensions being undermined.

US inflation is more than double the Fed’s flexible 2% annual target.

The International Monetary Fund last week warned of mounting inflationary pressures, particularly in the United States, and said U.S. central bankers should focus more on inflation risks.

“There is evidence that they (the Federal Reserve) should act faster than they have,” Scharf said.

“Inflation is very, very real,” he said. “Prices are significantly higher for inputs in most industries. Labor shortages and wage increases are extremely real. Whether this continues for several years is not so relevant, but it will certainly have an impact over the next year.”

The U.S. central bank must be ready to react to the possibility that inflation does not decline in the second half of next year, as most forecasters currently expect, the Fed chairman said last week, Jerome Powell.

“I guess now there will be a faster path to appropriate actions,” Scharf said.

Goldman Sachs’ Solomon expects inflation to be higher for some time, but does not expect a repeat of the 1970s cost hike, he said in an interview with CNBC.

“There’s a reasonable chance we’ll have above-trend inflation for a while, but that doesn’t mean it has to be like the 1970s,” he said. “You have to be careful and manage your risk appropriately.”

Solomon acknowledged “uncertainty” in global financial markets due to factors such as the emergence of the Omicron variant COVID-19 and question marks over the pace at which the Fed and other central banks will scale back purchases. assets.

The Fed has begun scaling back its $120 billion monthly purchases of Treasuries and mortgage-backed securities at a pace that would put it on track to complete the sell-off in mid-2022. There is growing pressure on the central bank to accelerate the end of the bond-buying program, which was unveiled in 2020 to stem the economic fallout from the pandemic.

“We’re still not completely out of the pandemic. There’s uncertainty coming from that and that uncertainty is going to affect economic activity,” Solomon said.

“On top of that, we have ongoing changes in fiscal and monetary policy to try to balance that. There’s no doubt that it’s been an unprecedented time, so it’s very difficult to predict how we’re going in to go out. “

(Reporting by Matt Scuffham, Editing by Louise Heavens, Emelia Sithole-Matarise and Paul Simao)

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