The recent failure of U.S.-based Archegos Capital Management, a family office that made large, risky bets on a handful of stocks, could be a sign of how more investors might get tripped up by overreacting to inflationary risks, the global club of central banks warned on Tuesday.
Shocks to financial markets from higher inflation could result from enormous government spending plans and a rapid release of household savings built up during the Covid-19 pandemic, said the Bank for International Settlements, often called the central bankers’ central bank.
A string of banks, led by Credit Suisse Group AG, lost billions of dollars on loans to Archegos when it collapsed in April. The BIS said prolonged, aggressive risk-taking in markets had increased the probability of investors being wrong-footed.
Agustín Carstens, head of the BIS, said its central prediction was for a smooth recovery with only temporary rises in inflation above central bank targets in the U.S. and other advanced economies. But uncertainties remained, particularly if the pandemic was quickly overcome and households began to splurge the cash they had saved during lockdowns.
“How fast will households reduce those savings?” he said, adding that if government spending continues at a rapid pace, “then that could cause higher inflation.”
