Why the inflation spike will be temporary: BNY Mellon Wealth Management CEO

Max Zahn with Andy Serwer
·3-min read

Retail sales data released on Thursday showed a massive spike in purchases last month that nearly doubled economist expectations, fueling optimism about the COVID-19 recovery as widespread vaccination takes hold and businesses reopen.

News of the spending boom came days after data revealed a jump in consumer prices last month, heightening inflation fears among some observers like former Treasury Secretary Larry Summers, who warned that the U.S. is "doing roughly everything you can do to create inflation."

In a new interview, BNY Mellon Wealth Management CEO Catherine Keating tamped down concern about inflation, saying the price hikes will be temporary. She pointed to two trends that predate the pandemic: an aging population and rising debt.

Speaking to Yahoo Finance on Wednesday, a day after the news of a spike in consumer prices last month, Keating acknowledged that inflation had exceeded expectations but said she shares the lack of alarm expressed last month by Federal Reserve Chairman Jerome Powell. 

Catherine Keating, the BNY Mellon Wealth Management CEO, speaks with Yahoo Finance Editor-in-Chief Andy Serwer in an episode of
Catherine Keating, BNY Mellon Wealth Management CEO, speaks with Yahoo Finance Editor-in-Chief Andy Serwer in an episode of "Influencers with Andy Serwer."

"[Inflation] is rising and maybe even a little more than we expected," says Keating, who worked for nearly two decades at JPMorgan. "But we would join Chairman Powell and say we do think it's going to be transitory — that we'll see it this year as we rebound from the lows of last year."

While prices will rise in the near term as the economy begins to recover, longstanding trends will place downward pressure on the spike, Keating said, citing aging populations in developed countries. As individuals age, they eventually leave the workforce and reduce their spending power. 

The proportion of people age 65 and over in the world’s more-developed countries is projected to reach 27% by 2050, up from 18% in 2018, according to the research group Population Reference Bureau

"The major economies of the world — whether it's the U.S., Europe, China, Japan — are all aging and aging economies tend to be a bit deflationary," she says.

In allaying fears of runaway inflation, Keating also pointed to a significant amount of public and private debt, which she said would diminish spending and push prices downward over the long term.

"Debt tends to be a bit deflationary," she says. "You have more public debt, think of your own household, if you have a lot of debt, you're paying off debt, you're not investing for other things." 

"So there's more public debt, there's actually more private debt than there was because of the low interest rate environment that we've had over the last decade," she adds.

Keating spoke to Serwer in an episode of “Influencers with Andy Serwer,” a weekly interview series with leaders in business, politics, and entertainment.

She spent nearly two decades climbing the ranks at JPMorgan, helping the bank weather the Great Recession. In 2014, she jumped to the nonprofit Common Fund, a leading asset manager for endowments and foundations, which she ran until joining BNY Mellon three years ago.

Formerly the chair of the board at her alma mater, Villanova University, she belongs to the Council on Foreign Relations and the Economic Club of New York.

Speaking to Yahoo Finance, Keating noted new phrases that have become commonplace amid the pandemic, such as "work from home" and "jab." 

In the current economic conditions, she said, there's another important new word: transitory.

"One of those words that [Fed] Chairman Powell uses all the time, which is 'transitory,' because inflation and the needing to raise interest rates is often what ends an economic expansion cycle," she says. "So we all expect to see inflation rising."

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