Jamie Dimon Warns of ‘Most Treacherous’ Time Ahead That Might Eclipse Anything Seen Since World War II

Jamie Dimon, chairman and CEO of JPMorgan Chase, testifies during a Senate Banking Committee hearing at the Hart Senate Office Building in Washington, D.C., on Dec. 6, 2023. Win McNamee/Getty Images

JPMorgan CEO Jamie Dimon issued a stark warning about the U.S. economy, saying that the risks confronting Americans today may well be the worst since World War II, while cautioning of downside risks that may dash market expectations for an economic “soft landing.”

Mr. Dimon made the remarks in his annual letter to shareholders, in which he said that investors may be overlooking risks as they navigate a complex and dangerous world.

“We may be entering one of the most treacherous geopolitical eras since World War II,” Mr. Dimon wrote, warning that the impacts of major economic and geopolitical forces—from high levels of debt and fiscal stimulus, to the wars in Ukraine and the Middle East—could deliver nasty surprises to markets.

He said he’s worried about the Biden administration’s ongoing deficit spending, the unknown effects of quantitative tightening, the prospect that inflation will stay higher for longer, and the forces of deglobalization.

“The impacts of these geopolitical and economic forces are large and somewhat unprecedented,” Mr. Dimon warned. “They may not be fully understood until they have completely played out over multiple years.”

Inflation, Recession Fears

Even though many economic indicators appear good and may even be improving, including inflation numbers, Mr. Dimon said this could turn out to be little more than a mirage.

“There seems to be a large number of persistent inflationary pressures, which may likely continue,” Mr. Dimon wrote.

Inflation continues to be fanned by factors like ongoing fiscal stimulus, supply chain dislocations as global trade undergoes a major restructuring, remilitarization of the world, and the capital needs of the new green economy, he said.

The deficits of today eclipse those of the past, and what’s different this time around is that fiscal stimulus is taking place during a period of economic expansion rather than to pull the country out of a recession.

“I remain more concerned about quantitative easing than most, and its reversal, which has never been done before at this scale,” he said, warning about the unclear impacts of the sharp expansion in the money supply in recent years.

He said that last year’s “mini banking crisis” is over but there’s a risk that higher-for-longer interest rates will be needed to try take the sting out of persistent inflation. This could upend some of the rosy market expectations: that the ongoing period of high interest rates will cool the economy just enough to bring down inflation but not enough to cause a recession.

“Markets seem to be pricing in at a 70 percent to 80 percent chance of a soft landing, modest growth, along with declining inflation and interest rates,” Mr. Dimon wrote. “I believe the odds are a lot lower than that.”

The JPMorgan chief said that the instability associated with last year’s events—including major wars, high inflation, economic uncertainty, mounting terrorist activity, and growing geopolitical tensions with communist China—have had serious ramifications and are poised to keep impacting America negatively.

Warning of a “potential restructuring of the global order,” as America’s global leadership is challenged externally by other nations and internally by a polarized domestic electorate, Mr. Dimon said investors should be mindful of downside risks.

“The ongoing wars in Ukraine and the Middle East continue to have the potential to disrupt energy and food markets, migration, and military and economic relationships, in addition to their dreadful human cost,” he said. “These significant and somewhat unprecedented forces cause us to remain cautious.”

What to Do?

Mr. Dimon warned against relying on economic forecasts and highlighted the need to weigh a variety of potential outcomes—and prepare.

Part of the problem is that there are many geopolitical and economic issues at play and it’s unclear how they may interact, and in what timeframe.

“For example, the geopolitical situation may end up having virtually no effect on the world’s economy or it could potentially be its determinative factor,” he said.

Businesses should plan for a “very broad” range of interest rates, from 2 percent to as high as 8 percent or even more.

Investors should also make contingencies for a soft landing—as well as a situation where inflation stays high but a recession hits, known as “stagflation.”

“Economically, the worst-case scenario would be stagflation, which would not only come with higher interest rates but also with higher credit losses, lower business volumes, and more difficult markets,” he wrote.

Mr. Dimon’s concern about higher-for-longer inflation is shared by some of his Wall Street colleagues.

For instance, BlackRock CEO Larry Fink recently predicted that price pressures would stay elevated for longer than most people believe, though he suggested that wage-earners stand to be benefit since, starting in the fourth quarter of 2023, wage growth has outpaced inflation.