“If inflation falls as markets currently expect, allowing policy rates to fall, bank balance sheet pressures would likely reduce as longer-term rates fall, causing asset prices to climb.”

“If inflation proves to be more entrenched than expected, policy rates might need to go higher, which could further reduce asset prices, increasing pressure on banks. In such a scenario, policymakers could be forced to choose between aggressively fighting inflation or supporting banking stability.”

“Anchored inflation expectations have been foundational for economic growth over the past four decades. Central banks’ fight to bring inflation back to target and preserve anchored expectations must succeed.”

“Supervisors should consider what actions could be taken now to build resilience among regional banks in case high inflation proves to be more persistent than is currently expected by market participants.”