Wall Street Executives Express Concerns Over Inflation and Economic Outlook

By Carolina Mandl
NEW YORK (Reuters) – Some top executives at Wall Street banks have been showing concern about higher inflation and potential deterioration of the U.S. economy as tariffs take effect, noting there has been more cautious behavior from corporate clients.

“We have seen pauses in capex and hiring amongst our client base,” Citigroup’s Jane Fraser told analysts on Tuesday. “All of that said, the strength of the U.S. economy driven by the American entrepreneur and a healthy consumer has certainly been exceeding expectations of late.”

The bank expects consumer spending to cool in the second half if a spike in prices occurs.

Wells Fargo CEO Charles Scharf noted interactions with commercial banking clients and described their navigation of the new environment:

“Many have found ways to avoid passing the 10% tariffs on to their customers,” Scharf said. “At the same time, they are preparing for the downside and are not growing inventories or hiring aggressively and developing contingency plans if the downside scenario occurs.”

Scharf also expressed concerns about financial assets: “We should recognize there is risk to the downside as the markets seem to have priced in successful outcomes.”

All six of the biggest U.S. banks – JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs and Morgan Stanley – beat analysts’ profit expectations in the latest quarter, driven by the financial health of consumers and businesses, as well as busy trading desks.

However, while CEOs highlighted the resilience of the world’s largest economy, they described cautionary measures companies are taking due to uncertainty around tariffs.

U.S. stocks plummeted after President Donald Trump unveiled tariff rates on April 2. They have since recovered, with both the S&P 500 and the Nasdaq Composite hitting all-time highs on June 27 and achieving new records since then.

U.S. companies are navigating an uncertain environment. Trump has paused some tariffs while trade partners negotiate a deal, adding more unpredictability to business.

Following “Liberation Day,” global brokerages saw an increased chance of recession this year, with JPMorgan calculating a 60% probability. Major firms later trimmed their outlook, estimating JPMorgan’s recession probability now at 40%.

Many executives expressed concern over consumer reactions if goods prices surge due to tariffs.

Rising prices pulled inflation higher in June. Economists viewed the latest Consumer Price Index on Tuesday as evidence that Trump’s rising import taxes were passing through to consumers. It increased 0.3% last month, the most in five months, meeting expectations.

Yields on the 30-year Treasury reached a six-week high after the inflation data. The S&P 500 stock index ended lower.

Jamie Dimon, CEO of JPMorgan Chase, maintained a cautious stance on the U.S. economy, saying “significant risks persist,” while recognizing its resilience.

Goldman Sachs CEO David Solomon highlighted increased uncertainty ahead: “Geopolitical concerns have intensified in many regions, and a number of trade agreements remain unmaterialized, with the ultimate impact of higher tariffs still unknown,” he told analysts on Wednesday.

Overall, top executives expect the dealmaking pipeline to pick up in the second half of the year as business owners adjust to the new tariff environment. Most banks already benefited from M&A rebound in the second quarter.

“Corporations are looking past tariffs to lead their companies through strategic movements and growth,” said Morgan Stanley’s Chief Financial Officer Sharon Yeshaya.