The chief executive at JP Morgan Chase warned of an economic “hurricane” while painting a grim financial output. He advised investors that “you better brace yourself.” Jamie Dimon spoke during a financial conference and said, “It’s a hurricane. Right now, it’s kind of sunny; things are doing fine. Everyone thinks the Fed can handle this.”
However, Dimon added, “That hurricane is right out there down the road, coming our way. We just don’t know if it’s a minor one or Superstorm Sandy or Andrew or something like that, and you better brace yourself.”
The chief executive focused on two issues he said were concerning — the Fed’s efforts to reduce its balance sheet to tackle inflation by raising interest rates and the Ukraine-Russia war and how it affects rising prices for food and fuel. Dimon said the Fed’s interest rate hikes might backfire, leading to a recession. He emphasized that “wars go bad.”
Dimon’s remarks come as the U.S. grapples with inflation that hasn’t been seen in decades, further constraints on the world economy after Russia attacked Ukraine, and a nagging Covid-19 pandemic that has stalled supply chains internationally.
The Fed and the Biden administration have been criticized for not doing enough earlier to tackle inflation. In a recent interview, Janet Yellen, Treasury Secretary, conceded that she was “wrong” about the trajectory of inflation after she made previous comments that it would only be a “small risk.”
Dimon’s advice comes amid rapidly growing fears in financial sectors that the Fed might drag the economy into a recession as it attempts to tame inflation. Inflation climbed to a 40-year high, an 8.3% hike. Deutsche Bank, Bank of America, Fannie Mae, and Fed Chairman Ben Bernanke are the Wall Street firms and financial experts forecasting a steep economic downturn in the next two years.
“Pain associated” with lowering inflation
Earlier this month, lawmakers raised the benchmark interest rate for the first time in two decades and have signaled that similarly-sized rate hikes are possible at upcoming meetings. According to Fed Chairman Jerome Powell, there could be some “pain associated” with curbing demand and reducing inflation.
He warned that a soft landing is not promised. “It’s going to be a challenging task, and it’s been made more challenging in the last couple of months because of global events,” said Powell in an interview. He also sounded the alarm that a soft landing was not assured.
Powell added that “there are a number of plausible paths to having a soft or soft-ish landing. Our job isn’t to handicap the odds; it’s to try to achieve that.”