‘Inflation and interest rates may stay higher than the market expects,’ the JPMorgan Chase CEO warned.
JPMorgan Chase CEO Jamie Dimon said on July 12 that some progress has been made on the inflation front but warned that some inflationary forces persist, including high government spending and supply chain pressures as the structure of global trade undergoes major shifts.
Mr. Dimon’s remarks about persistent inflationary risks were made in a statement that was part of JP Morgan Chase’s second-quarter 2024 earnings
report, which showed the bank’s revenues rose 20 percent to $50.99 billion, topping consensus estimates.
Part of what drove the bank’s better-than-expected revenues was a 50 percent increase in investment banking fees, Mr. Dimon said in the statement, before turning his attention to the economy.
Even though market valuations and credit spreads hint at a “rather benign” outlook for the economy, the JP Morgan chief warned of possible macroeconomic and geopolitical clouds on the horizon.
“While market valuations and credit spreads seem to reflect a rather benign economic outlook, we continue to be vigilant about potential tail risks,” he stated. “These tail risks are the same ones that we have mentioned before. The geopolitical situation remains complex and potentially the most dangerous since World War II—though its outcome and effect on the global economy remain unknown.”
While Mr. Dimon didn’t specify the geopolitical risks that he had in mind, his reference to danger and military conflict seems to point to Russia–NATO relations in terms of the war in Ukraine, as well as U.S.–China relations in the context of Beijing’s increased military presence in the South China Sea and ongoing trade tensions with Washington. A recent
analysis of top risks for 2024 from S&P Global identifies both as having a potentially high impact that could disrupt global financial markets or even lead to a direct global military conflict.
Mr. Dimon turned his attention to inflation, which
recently slowed to 3 percent year-over-year in June, the lowest level in over three years. Wholesale inflation, by contrast, which measures the cost increases of business inputs that eventually tend to get passed along to consumers,
accelerated in June, suggesting that a revival of price pressures cannot be discounted.
“There has been some progress bringing inflation down, but there are still multiple inflationary forces in front of us: large fiscal deficits, infrastructure needs, restructuring of trade and remilitarization of the world,” Mr. Dimon said.
“Therefore, inflation and interest rates may stay higher than the market expects. And finally, we still do not know the full effects of quantitative tightening on this scale,” he added, referring to the Federal Reserve’s policy of keeping interest rates high and reducing the size of its balance sheet.
The JP Morgan chief has issued similar warnings in recent months and quarters,
saying in April that he was especially concerned about the impact of unprecedented levels of central bank money printing for years before the Fed pivoted in mid-2022 to a policy of quantitative tightening and high interest rates in response to soaring inflation.
In light of the progress on inflation, markets have been anticipating another Fed pivot in terms of interest rate policy. Investors are now putting the
odds of at least one interest rate cut at the central bank’s policy meeting in September at more than 94 percent.
Concerns have been expressed by market analysts and economists, including Mr. Dimon, that persistent inflationary pressures and the Fed’s response of holding rates high for longer to quash them, could trigger a recession.
