Wall Street banks are planning for a sustained period of higher inflation, running internal health checks, monitoring whether clients in exposed sectors could pay back loans, devising hedging strategies and counseling caution when it comes to deals.
U.S. consumer prices this month posted their biggest annual gain in 31 years, driven by surges in the cost of gasoline and other goods.
Senior bank executives have become less convinced by central bankers’ arguments that the spike is a temporary blip caused by supply chain disruption and are stepping up risk management.
Higher inflation is generally seen as a positive for banks, raising net interest income and boosting profitability. But if it jumps high too quickly, inflation could become a headwind, top bankers warn.
Goldman Sachs Chief Operating Officer John Waldron last month identified inflation as the No. 1 risk that could derail the global economy and stock markets.
JPMorgan Chief Executive Officer Jamie Dimon told analysts last month that banks “should be worried” that high inflation and high interest rates increase the risk of extreme price movements.
