US Wall Street Warns "Inflation Risk Should Not Be Underestimated" (Comprehensive)

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 of corporate profit and market momentum slowdown.

According to major foreign media on the 23rd (local time), John Waldron, Chief Operating Officer (COO) of Goldman Sachs, a major US investment bank, recently identified inflation as the greatest risk that could derail the global economy and stock markets. Inflation is emerging as a significant variable that not only poses a direct risk to the global economy and stock markets but also affects the 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 extreme price volatility," adding that "this is a level that banks should be concerned about."

While high inflation is favorable 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, the US consumer price index surged to around 6% in October, marking the largest increase in 31 years. In response, Wall Street banks are 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 is also concerned that high inflation could lead to a downturn in the mergers and acquisitions (M&A) market. Paul Collong, US 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."

Market anxiety is also spreading rapidly. Chris McReynolds, Head of US Inflation Trading at Barclays UK, said, "Clients are showing more interest in finding inflation protection measures," and noted that despite movements to avoid bonds during high inflation periods, Treasury Inflation-Protected Securities (TIPS) issued by the US Treasury are gaining popularity.

This outlook came as US President Joe Biden renominated Jerome Powell as Chair of the Federal Reserve 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.