Maybe inflation isn't such a big problem after all

Inflation? What inflation?
On the election trail, inflation is such a big issue that it may on its own lead to a change in power in Washington, D.C. In the markets, inflation is such a big deal that the pronouncements of every Fed official, even the rank and file ones who are setting policy, make headlines. But in the real world, maybe inflation isn't that big a deal?

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I know that last statement feels wrong. The cost of virtually everything these days is noticeably higher, and it has people in a foul mood. I myself get anxiety every time I check out at the grocery store; it feels like I can't get out of there without dropping at least $100. On that level, inflation is definitely an issue, and an acute one. 

And inflation is accelerating, again. On Wednesday, the Bureau of Labor Statistics reported that the August consumer price index rose, showing inflation running at a 3.7% annual rate. That is up from July, and not the direction you want if you're a central banker, a president, or anybody really. The report sparked chatter that the Fed was going to be forced to raise rates at its next FOMC meeting in a couple of weeks. 

But if you look at the first clutch of earnings reports from the nation's biggest banks, inflation does not seem to be having much effect on their P&Ls at all, even when you're looking at how their retail businesses are faring. 

Client balances at Citi's wealth division, which now includes its retail bank, rose 9% in the third quarter compared to a year ago, rising to $1.4 trillion. The unit's revenue rose 15% and income 93%. Maybe you could argue the bulk of that came from wealthier clients less affected by inflation.

At Well Fargo, both revenue and profit rose on the back of two completely consumer-driven activities: people taking out new credit-card accounts and auto loans. The bank said it saw strength among its clients across income levels and  that its nonaccrual consumer loan level fell 8% from a year ago, certainly not a sign of rising stress. 

JPMorganChase, which earned a cool $15 billion in the third quarter, said net chargeoffs in its consumer and community banking operations were flat from a year ago at $1.98 billion. Its overall provision for credit losses fell to $2.7 billion from $3.4 billion a year ago (albeit up a bit from $2.5 billion a quarter ago).

I do think there are real issues that people are facing, but those issues don't appear to be hurting banks, not yet at least. At the very least that means people are still spending and taking on credit, which should result in the economy continuing to grow to some degree.

The risks of consumer AI 
I'll tell you honestly, I don't even like to give my doctor information about my health. I don't like to tell my bank about my money, and they are holding my money. I do these things, of course, but I'm not comfortable about doing them. I was wired at a time when you didn't just hand out details about your life to whoever asked. 

My attitude is definitely an anachronism, and it is only going to get more anachronistic as time goes on, because now you can tell your entire life to a chatbot and then ask it to do things for you. "Agentic AI," they call it, in case you haven't heard. But holding all that information, and doing things with it, comes with responsibilities, not only for the consumers and tech companies running the bots, but for banks as well. 

JPMorgan executives talked a lot during their third-quarter conference call about the risks of people using AI agents, and what competitive risks that creates for banks. The fear is that chatbots will ruthlessly search out the best rates and create a lot of competition for deposits among banks.

But there's another issue for banks, a very real legal issue that needs to be ironed out, our Kate Berry reports. If banks use AI agents themselves, say for customer service, they could break consumer-protection laws depending on what the bot does, or doesn't let the customer do, with a customer's information, a new study warned.

In essence, whoever controls the chatbot, and let's say that's your bank, is responsible for every action of that chatbot, every answer given, every dead end arrived at, every roadblock hit or promise broken. It is a wide Sargasso Sea of uncertainty, and banks are going to have to either game out all of it beforehand or wade through it in real time.