The impact soaring inflation (short term or long) could have on banking

Whether the current inflationary pattern is merely a strong but 'transitory' reaction to current economic pressures or the beginning of a major challenge for banks and credit unions remains to be seen. Bankers and other experts suggest steps to cover the bases either way.

Higher inflation is back. The questions now are how severe it can get and how long will that last.

“Inflation is running well above target and we expect it will continue to do so in the coming months ahead, before moderating as [supply] bottlenecks ease,” Federal Reserve Board Chairman Jerome Powell stated during a panel discussion of central bank heads held by the European Central Bank.

He added, when asked by Alessandra Galloni, Editor in Chief of Reuters, if central bankers had let the “inflation genie” out of the bottle, that even if supply-chain troubles ease, things will not go back to pre-Covid levels.

“We don’t mean prices will come down,” said Powell. “We mean that the inflationary spike will not lead to an ongoing regime of higher inflation. … The current inflation is the result of supply constraints meeting very strong demand.” Powell drove his fists together to emphasize the collision of the two forces.


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