JPMorgan chief executive Jamie Dimon sounded the alarm on a possible recession, warning Wall Street to brace for the threat of rising interest rates even as inflation slows.
“A lot of things out there are dangerous and inflationary. Be prepared,” Dimon said at the New York Times DealBook Summit in New York on Wednesday.
“Interest rates could go up and that could lead to a recession,” he added, according to CNN Business.
Dimon’s comments suggest he doesn’t expect a rate cut after the next two-day Federal Open Market Committee meeting on 11-12 December.
Federal Reserve officials have voted unanimously to keep the benchmark federal funds rate at its current 22-year high of between 5.25% and 5.5% for the past two meetings, with little indication that they’ll cut rates in the future.
Fed Chairman Jerome Powell even reiterated this during his closely watched speech at the International Monetary Fund’s policy panel in Washington, DC, earlier this month: “If it becomes appropriate to tighten policy further, we will not hesitate to do so.”
Economists are divided over the central bankers’ next move – and whether it means the US economy is in for a soft landing, avoiding recession, or a hard landing.
“I’m cautious on the economy,” Dimon said.
The 67-year-old investment bank boss also noted that “inflation is hurting people” and, in a moment of positivity, pointed to the resilient labour market.
Representatives for Dimon at JPMorgan declined to comment.
Economists have cited October’s weaker-than-expected jobs report – when the Bureau of Labor Statistics reported that the US economy added 150,000 jobs – as a signal that a rate cut is imminent.
The unemployment rate is now 3.9%, the agency said, above the Fed’s year-end forecast of 3.8%.
Inflation has also trended weaker than the central bankers’ estimates, as Americans see some respite from the Fed’s aggressive tightening cycle that began in March 2022, when rates were between 0.25% and 0.5%.
Inflation peaked at 9.1% in June last year, and rates have since risen at a pace not seen in 40 years.
The Fed hasn’t cut rates for more than a year despite falling inflation, which slowed to 3.2% in October according to the Consumer Price Index, which tracks changes in the cost of everyday goods and services.
The figure was down from September’s 3.7% rise, although it remains well above the Fed’s 2% inflation target, which the US economy hasn’t seen since 2012.
In an interview with Bloomberg TV last month, Dimon suggested that Americans were in for a rate hike of as much as 1.5 percentage points to a staggering 7%, which would mark the highest federal funds rate since December 1990.
Dimon’s recession warnings echo those of hedge fund titan Bill Ackman, who said just this week that the Fed must cut interest rates as early as the first quarter to avert “a real risk of a hard landing” for the US economy.
Ackman said that if the Fed keeps interest rates in the 5.5% range while inflation trends below 3%, “that’s a very high real interest rate”.
“What’s happening is the real rate of interest, which is what affects the economy, keeps going up as inflation goes down,” the Pershing Square Capital Management founder said.
“I think there’s a real risk of a hard landing if the Fed doesn’t start cutting rates soon,” Ackman added, noting that he has seen signs of a slowing economy.
However, traders aren’t fully pricing in a rate cut until the end of the second quarter of 2024, in June.
The probability of a cut in May is around 80%, the data showed.
