According to the Institute of International Finance, an industry association, US banks are likely to post record profits in 2021 as the American economy recovers and financial markets remain buoyant.
Tim Adams, chairman of the IIF, said Friday that the improving economy will help banks recover in lending and fee income, while more investing will drive trading revenues.
“I think we’re going to have a record year this year so it’s a good year for banks. We see it in bank stocks and I think it will continue to reflect the underlying really strong fundamentals, at least for banks.” Rest of this year, “Adams told CNBC’s Street Signs Asia.
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Bank stocks in the US have risen higher this year. Among the major banks, Goldman Sachs shares were up 40.8% at close of trading on Thursday this year, while Bank of America and JPMorgan were up roughly 40.4% and 29.3%, respectively.
Many of the major US banks last month reported first quarter earnings that exceeded analysts’ expectations on various financial metrics.
Fed to “make this economy hot”
The banks’ improved performance is due to the US economy recovering from the collapse of the Covid-19 pandemic. The recovery raised concerns among investors that a faster rise in inflation could cause the Federal Reserve to tighten monetary policy sooner than hoped.
The US consumer price index rose 4.2% year over year in April – the sharpest increase since 2008.
Adams said it was time for the Federal Reserve to talk about the possibility of tightening monetary policy. However, there is little evidence that Fed chairman Jerome Powell would do so anytime soon, he added.
“I think they are going to make this economy hot. I think they are going to make it hot for a very long time and they will wait and see how high the inflation is and how persistent the inflationary pressures are and not just temporary.” is what we see now, “said Adams.
The Fed had previously said that a surge in inflation would be temporary as it compares to last year’s pandemic-hit economy. The central bank also said it would keep monetary policy loose.