JPMorgan CEO Warns Interest Rates Could Top 8 Percent as Inflation Stays High

JP Morgan Chase CEO Jamie Dimon testifies before the House Financial Services Committee on Capitol Hill in Washington, on April 10, 2019. Mandel Ngan/AFP via Getty Images

JPMorgan CEO Jamie Dimon has warned that interest rates could top 8 percent, with his grim prediction coming as the latest economic data show inflation rising.

Mr. Dimon made the remarks in his annual letter to shareholders on April 8, in which he cautioned about the prospect of inflation staying higher for longer, while expressing worry that the forces of deglobalization and the Biden administration’s ongoing deficit spending were exacerbating price pressures.

“The economy is being fueled by large amounts of government deficit spending and past stimulus,” he wrote.

Treasury Department data released on April 10 show that the U.S. budget deficit topped $1 trillion in the first six months of fiscal year 2024, putting the federal government on track to notch its fifth consecutive trillion-dollar-plus budget gap.

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

“There is also a growing need for increased spending as we continue transitioning to a greener economy, restructuring global supply chains, boosting military expenditure, and battling rising healthcare costs,” Mr. Dimon continued. “This may lead to stickier inflation and higher rates than markets expect.”

His prediction of higher-for-longer inflation was bolstered on April 10, when the government released the latest Consumer Price Index (CPI) numbers, which showed inflation rising from 3.2 percent in January to 3.5 percent last month.

While inflation has fallen from the recent June 2022 peak of 9 percent, the latest data show that price pressures remain elevated, putting pressure on the Federal Reserve to maintain higher interest rates for longer—or even raise them further.

Currently, the federal funds rate is within a range of 5.25–5.50 percent, with markets expecting a single 25 basis-point rate cut by the end of the year.

Interest Rates at 8 Percent or ‘Even More’

Mr. Dimon warned in his letter to shareholders that even though many economic indicators appear good and may even be improving, he said things could easily sour.

“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.

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

The JPMorgan CEO then said that Americans should brace for a “very broad range” of Fed interest rates, from 2 percent to 8 percent “or even more, with equally wide-ranging economic outcomes.”

The worst-case scenario would be a combination of high inflation and recession—a toxic mix known as stagflation that would “not only come with higher interest rates but also with higher credit losses, lower business volumes and more difficult markets.”

He said markets seem to be pricing a roughly 70–80 percent chance of a “soft landing,” meaning that the Federal Reserve’s interest rate hikes would cool the economy enough to lower inflation but without falling into recession.

“I believe the odds are a lot lower than than,” Mr. Dimon warned.

Despite predictions that the Fed’s aggressive rate-hiking cycle would trigger a recession, the numbers haven’t borne this out, due in large part to apparent labor market strength.

However, a number of preliminary signs of labor market weakness have emerged recently, clouding the economic horizon.

Recession Watch

Even though the unemployment rate remains near historical lows at 3.8 percent, the number of jobless Americans has been rising steadily over the past year or so.

Job-cut announcements hit 257,254 in the first quarter of 2024, according to a report from career transitioning firm Challenger, Gray & Christmas. That’s a 120 percent increase from the 117,163 cuts that occurred in the final quarter of 2023.

Also, even though recent jobs reports indicate that the economy added more and more jobs, there’s evidence that most of the positions being created are part-time and people are working fewer hours.

In fact, the latest jobs report shows that the total number of employed persons has fallen by nearly 400,000 over the past four months and that roughly 1.8 million full-time jobs have disappeared over the same period.

“We have not created one net new full-time job,” economist David Rosenberg told Business Insider in a March interview.

“I have a tough time grappling with the overwhelming consensus view that we gave some sort of terrific labor market when all we’ve accomplished is [turning] this thing into a part-time economy,” Mr. Rosenberg added, while predicting that the unemployment rate would rise to 5 percent by the end of the year.

The U.S. economy expanded at a solid 3.4 percent pace in the fourth quarter of 2023.

The Federal Reserve Bank of Atlanta’s latest real-time estimate of U.S. gross domestic product (GDP) in the first quarter of this year is 2.4 percent, as of April 10.