JPMorgan Chase (JPM) CEO Jamie Dimon cautioned on Wednesday that the Federal Reserve may consider an interest rate hike by an additional 75 basis points, citing concerns over persistent inflation. Dimon advised businesses to prepare for this potential worst-case scenario.
Speaking in an exclusive interview with Yahoo Finance Live at JPMorgan Chase’s ‘Make Your Move Summit’ in Frisco, Texas, Dimon shared his perspective just hours after the Fed’s decision to maintain interest rates within the range of 5.25%-5.50%.
“I think they’re right to pause here and see what happens,” Dimon stated, adding, “I suspect that they may not be done.”
The JPMorgan CEO further commented on the magnitude of a potential future rate hike by the Fed, suggesting, “Maybe 25, 50 to 75 [basis points] more.”
“I’m not predicting that,” he clarified, “I just think there’s a higher chance than probably other people think.”
In its statement on Wednesday, the Federal Reserve upgraded its assessment of the economy to “strong” for the third quarter, up from “solid” in September. This adjustment followed the release of third quarter GDP data, which revealed a robust annualized growth rate of 4.9% over the summer months, largely driven by robust consumer spending.
While acknowledging the Fed’s decision to pause, Dimon expressed his belief that inflation might be more persistent than anticipated and that the combined fiscal and monetary stimulus over recent years may have been underestimated. He pointed out the historically low unemployment rate, emphasizing the need for continued vigilance.
Dimon has been issuing warnings for months regarding the potential for a surge in interest rates and the associated risks for those in the financial sector who may have taken excessive risks during the low-rate environment.
“This may be the most dangerous time the world has seen in decades,” Dimon asserted in the firm’s earnings release on Oct. 13.
His concerns are particularly focused on the effects of the Fed’s quantitative tightening, which is increasing the supply of bonds while foreign governments are reducing their purchases. This, he warned, could exert additional pressure on 10-year Treasury yields.
“At one point,” he cautioned, “it will rattle the markets.”
Among major banks, JPMorgan appears to be the best positioned for an era of higher rates. As early as 2020, the bank signaled its reluctance to take on excessive risk with the influx of deposits during the initial stages of the pandemic.
Unlike some rivals who invested in longer-dated securities in search of higher yields, only to face losses as the Fed raised rates in 2022 and 2023, JPMorgan’s cautious approach paid off. The bank exceeded Wall Street expectations, earning $13.2 billion in the third quarter, a 35% increase from the same period last year.
Dimon, who has been at the helm since 2005, is the longest-serving CEO of a major national bank and the only one with vivid memories of navigating the worst financial crisis since the Great Depression.
He warned that after decades of low rates, markets may undergo a “sea change,” citing several “long-term inflation effects” including a substantial US deficit, increased domestic spending on new programs, and an aging population reliant on government social safety nets.
“I don’t see anything that is future disinflationary,” Dimon emphasized. JPMorgan, he assured, is well-prepared for the possibility of higher long-term rates. “We stress for it,” Dimon affirmed, underscoring the bank’s readiness to “serve [its] clients regardless.”
However, as rates remain elevated, the CEO offered a cautionary note, stating, “you are going to see quite a few people swimming naked.”
Source: Yahoo Finance
