JPMorgan President Says ‘Deeper Recession’ Is Acceptable Price for Taming Inflation

The Federal Reserve Board building on Constitution Avenue in Washington on March 27, 2019. Brendan McDermid/Reuters

The president of the world’s largest investment bank says that a “deeper recession” is an acceptable price for taming high inflation.

Daniel Pinto, president and chief operating officer at JPMorgan, told CNBC in a recent interview that he supports the Federal Reserve’s aggressive interest rate hikes.

“I think putting inflation back in a box is very important,” he said in the interview. “If it causes a slightly deeper recession for a period of time, that is the price we have to pay.”

The United States is dealing with 40-year high inflation and a technical recession after two consecutive quarters of negative growth in the first half of the year.

Many analysts fear that the Fed’s current rate policy will force the U.S. economy into a serious recession, leading to economic chaos worldwide after global financial markets were conditioned to 14 years of extremely low interest rates and increasing interdependency.

There are already cracks among Fed policymakers regarding whether to continue its current hawkish policy track.

San Francisco Fed President Mary Daly said on Friday that the central bank needs to consider slowing down its pace of benchmark rate increases, according to Marketwatch.

“I think the time is now to start talking about stepping down. The time is now to start planning for stepping down,” Daly told an audience at the University of California, Berkeley, but she stressed that slowing down rate increases was not the same as stopping rate hikes.

However, it still seems likely her colleagues at the Fed will raise the benchmark rate by 0.75 percentage point for the fourth consecutive time at the next policy meeting on Nov. 1–2.

The federal funds rate is currently between 3 to 3.25 percent and is expected to peak at 4.5 to 5 percent.

Daly said that a slower pace is important to avoid overtightening, but that the Fed must still raise rates enough to slow inflation.

An Atypical Recession

Former Treasury Secretary Larry Summers agrees with Pinto and is also on board with the Fed’s current policy moves.

“The unemployment rate is likely to rise perhaps toward 6 percent. That’s a very real and not an easy thing,” Summers said in a recent interview with CNN’s Wolf Blitzer. “But I think what people need to understand is that it is better to do that sooner rather than to allow inflation to accelerate and allow everybody to expect inflation, at which point you’ll have a much greater set of difficulties.”

The American economy remains in a technical recession since U.S. gross domestic product contracted for the first half of the year. Other than a sharp increase in the price for goods and services, corporate earnings continue to be stable, and the labor market remains strong.

This has caused much debate among analysts and investors regarding the true state of the American economy.

″I don’t think we’ve seen the bottom of the market yet,” Pinto noted in his CNBC interview, regarding the S&P 500’s 21 percent drop since the start of 2022.

He said that after the central banks temper inflation, interest rates are likely to remain elevated above pre-2008 levels. The low to negative rates around the world, characteristic of the pre-pandemic era, are over, Pinto remarked.

“Real rates should be higher in the next 20 years than they were in the last 20 years,” he said.