JPMorgan Chase CEO Jamie Dimon believes U.S. interest rates will likely rise above 5 percent because of “underlying Inflation.” This is higher than what the Federal Reserve is currently projecting, as inflation remains stubbornly high.
The Fed has raised its benchmark interest rate in December to a targeted range of 4.25–4.5 percent, the highest level in 15 years, in order to suppress rising prices.
The central bank’s anticipated “terminal rate”—the target at which policymakers expect to end the rate hikes—was set at 5.1 percent during the policy meeting in December 2022. The Fed intends on raising rates until inflation falls to a 2 percent target.
Dimon Expects a Recession, but Worries More About Poor Public Policy
Fed officials in December said that they were planning on raising the benchmark rate up to a range of 5.0–5.25 percent this year and likely will keep it there for some time.However, the series of aggressive rate hikes by the Fed, due to a strong labor market and resilient consumer spending, have fueled worries by some economists about a recession.
“I know there are going to be recessions, ups and downs. I really don’t spend that much time worrying about it. I do worry that poor public policy damages American growth,” Dimon said.
Meanwhile, the Consumer Price Index (CPI), which measures the price of goods and services, rose 6.5 percent last from a year ago, the least annual increase since October 2021. This has added to hopes that inflation is finally on a downward trend.
However, the JPMorgan CEO said that the recent ease in inflation was due to temporary factors, such as a pullback in oil prices and an economic slowdown in China due to the pandemic.
“We’ve had the benefit of China’s slowing down, the benefit of oil prices dropping a little bit,” Dimon said.Fed Officials to Persist at Raising Benchmark Rate
Fed policymakers have stated that they will persist at pushing more interest-rate hikes to get inflation more firmly under control, even if it causes the economy to slowdown.
They said they wanted to avoid the mistake of just stopping short of beating inflation, only having to raise rates again to finish the job later, like what happened in the 1970s and 1980s.James Bullard, president of the Federal Reserve Bank of St. Louis, told The Wall Street Journal on Jan. 18 that the Fed should move as fast as possible to get its policy rate over 5 percent and later react to the data.
When asked if he was open to another half-point rate hike at the Fed’s upcoming meeting, Bullard responded, “Why not go to where we’re supposed to go? ... Why stall?”
“Let’s move the policy rate to the right level ... then we'll see how 2023 unfolds,” continued Bullard.Other Fed officials agree with Bullard that a slower pace will allow the Fed to see how the tightening is affecting the economy.
Several of his colleagues at the central bank want to slow the pace of rate hikes to 25 basis points at their next meeting on Jan. 31–Feb. 1.
“So, I’m comfortable beginning that stepped-down process ... I’d be happy to do 25 [basis points] if I were there,” she said.
