Wage inflation could continue to drag down finances
The prospect of rate hikes might have seemed like a boon for banks in 2022, but wage inflation is looking to cast gloomy skies over the financial sector.
This was evident with banks starting 2022 off on the wrong foot with global investment firm JPMorgan posting its smallest earnings beat in the past two years.
“Higher-than-expected expenses drove fourth-quarter profit down 14% to $10.4 billion, while revenue was virtually unchanged at $30.35 billion,” CNBC reports. “JPMorgan said in its statement that it derived net income of $1.8 billion from the release of loan loss reserves that never materialized; but for the 47 cents per share increase, earnings would have was $2.86 per share.”
One of the headwinds JPMorgan faces is a tighter labor market. Not having enough talent to properly attract the potential employee, the company must pay higher wages in order to attract or retain employees.
“It’s true that labor markets are tight, there’s a bit of labor inflation, and it’s important for us to attract and retain top talent and pay competitively based on performance. “, said CFO Jeremy Barnum, noting that higher expenses and modest revenues present headwinds ahead for the company.
As mentioned, however, the pull of rising rates opposes the push. This could help shore up revenue from lending products as rates begin to rise, if the Federal Reserve becomes more aggressive with tighter monetary policy.
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