US Wall Street Warns "Inflation Risk Should Not Be Underestimated"

Goldman Sachs Headquarters (Photo by Reuters)

[Asia Economy Reporter Yujin Cho] Wall Street in the United States has identified the current high inflation situation as the greatest risk that could derail the global economy and stock markets. As inflation concerns begin to be strongly reflected in the market, it is pointed out that this will act as a cause to slow down corporate profits and market momentum.

According to major foreign media on the 23rd (local time), John Waldron, Chief Operating Officer (COO) of Goldman Sachs, a major U.S. investment bank, recently pointed to inflation as the greatest risk that could derail the global economy and stock markets. Inflation is emerging not only as a direct risk to the global economy and stock markets but also as a significant variable affecting financial, consumer, and commodity markets.

Jamie Dimon, Chief Executive Officer (CEO) of JP Morgan, also warned his analysts that "high inflation and high interest rates are increasing the risk of severe price volatility," adding that "this is a level that banks should be concerned about."

While high inflation acts as a positive factor for banks, rapidly rising inflation increases the borrowing burden on companies, which could instead create a headwind. Due to the economic reopening after COVID-19, supply chain issues, and soaring commodity prices, U.S. consumer prices surged to around 6% in October, marking the largest increase in 31 years. In response, Wall Street banks are closely monitoring the loan repayment capabilities of companies exposed to inflationary pressures and are struggling to devise ways to hedge against inflation.

European investment bank Alcentra also expressed concerns that high inflation could lead to a downturn in the mergers and acquisitions (M&A) market. Paul Collong, U.S. Managing Partner at Alcentra, stated, "Inflation can affect corporate value and profits due to monetary policy shifts and cost increases from rising expenses," adding, "We are continuously monitoring credit risks, especially among consumer goods and manufacturing companies that are highly exposed to inflation risks."

This outlook came as U.S. President Joe Biden renominated Jerome Powell as Chair of the Federal Reserve (Fed) the day before. Although Powell maintained in this month's FOMC statement that the current inflation is higher and more persistent than expected but is a 'transitory' effect due to supply-demand mismatches after COVID-19, foreign media reported that confidence in this claim is weakening both inside and outside the Fed.

This content was produced with the assistance of AI translation services.