Inflation and rate hikes ahead: Bankers cautious on the economy

div classBodysc17zpet90 cdBBJodivpNEW YORK Reuters – Wall Streets major banks and asset managers were cautious about the economy as they detailed how both consumers and institutional clients were struggling to deal with skyhigh inflation and looming rate hikes. p

pThe big U.S. banks are reporting results at a time of surging inflation, which could lead the Fed to hike interest rates more aggressively this year.pdivdivdiv classBodysc17zpet90 cdBBJodiv

pWhile that can benefit big lenders by increasing what they earn from loans, rapid rate hikes could slow the economy and scupper a nascent recovery from the pandemic.p

p“All of our clients are feeling the impact of the inflationary pressures across the board,” Wells Fargo Chief Financial Officer Mike Santomassimo told reporters on a call.p

pWhile Santomassimo said that inflation has not yet shown up as a risk for the banks credit portfolios, the bank said that higher interest rates would hurt mortgage volumes. p

pLower income consumers are being the most impacted by rising energy and food prices, Wells CEO Charles Scharf said later on a conference call. p

pScharf said that, while the bank would likely see an increase in credit losses from historical lows, “we should be a net beneficiary as we will also benefit from rising rates.”p

pJPMorgan Chase & Cos Chief Executive Jamie Dimon on Wednesday warned of economic uncertainties, partly arising from soaring inflation.p

pMany Wall Street analysts and investors believe the U.S. Fed Reserve has acted too slowly to combat high inflation and are now forecasting even more aggressive rate hikes as the central bank catches up. p

pOn Wednesday Dimon said that he saw more rate hikes ahead than the market is pricing in, currently 3 at the end of 2023.p

p“Those are storm clouds on the horizon that may disappear, they may not,” said Dimon. “That‘s a fact. And I’m quite conscious of that fact, and I do expect that alone will create volatility and concerns.” p

pDimon said that the U.S. Federal Reserves quantitative tightening, as it reverses its pandemicinduced bond buying bonanza, will be “more substantially important than other people think because the huge change of flows of funds is going to create as people change their investment portfolio.” p

pGoldman Sachs CEO David Solomon meanwhile said on the companys earnings call that he was watching inflation, stress on the supply chain, commodity prices and how U.S. households were coping with rising costs.p

p“Weve also seen an increased risk of stagflation and mixed signals on consumer confidence,” said Solomon. “These cross currents will certainly create ongoing complexity in the economic outlook.” p

pBlackRock Inc described how clients were grappling with the changing economic landscape and adjusting their fixed income portfolios.p

p“Our clients are trying to understand the implications of the rapidly changing investment environment,” said Laurence D. Fink, chairman and chief executive, who pointed to Russias invasion of Ukraine as creating “a supply shock in commodities that is further increasing inflation.”p

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pp Reporting by Elizabeth DiltsMarshall and David Henry and Megan Davies Writing by Megan Davies Editing by Alison Williamsp

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