It appears JPMorgan CEO Jamie Dimon can’t see a means forward for the U.S. economic system that doesn’t finish in stagflation.
It’s a warning Dimon has issued earlier than, beforehand saying he fears America is headed for a repeat of the Nineteen Seventies when every thing “felt great” after which rapidly about-turned to a interval of excessive unemployment and inflation paired with low demand, also referred to as “stagflation.”
Showing at AllianceBernstein’s Strategic Selections convention on Wednesday, Dimon stated he merely can’t see how the previous 5 years of huge fiscal and financial stimulus may lead to something aside from this state of affairs.
Requested in regards to the well being of the banking sector extra broadly, Dimon stated he and the JPMorgan workforce are “scenario planning” for each a tough and tender touchdown. The overall consensus is the Federal Reserve will handle to engineer a tender touchdown, an financial slowdown that received’t finish in a recession.
“If we have a soft landing and rates stay where they are, come down a little bit—which is what the world expects, everyone’s fine,” he stated.
However the Wall Avenue veteran has lengthy refused to be lulled into any sense of safety, so he countered: “If you have a harder landing with stagflation you’re going to see a lot of stress and strain in the system from banks to leveraged companies to real estate to a whole bunch of stuff.”
“If things get worse it’s going to filter right through all those things and my view is the world’s just not ready for that,” he stated.
Certainly, the final sentiment on Wall Avenue is that 2024 is in for an additional comparatively clean 12 months. At a Goldman Sachs funding occasion attended by Fortune final week, a room of traders had been requested the place they had been bullish, bearish, or impartial on the outlook forward.
Greater than half—53%—stated they had been optimistic on the 12 months forward, whereas 39% had been impartial. Lower than 10% had been bearish.
Dimon, who was paid $36 million for his work main America’s greatest financial institution in 2023, isn’t so satisfied.
“A lot of you in this audience have never seen rates at 6% on a 10-year bond,” the 68-year-old Wall Avenue veteran added. “I don’t know why you think it’s not possible. It is possible. I, for one, think the odds are much higher than other people think.”
It has certainly been greater than 20 years since bond yields dipped above 6%, however previous to the late Nineteen Nineties this was virtually regular.
The CEO who not too long ago signaled his intention to go away the highest job at JPMorgan inside the subsequent 5 years stated he’s, extra broadly, seeing banks making ready for a spread of outcomes similar to the bottom price staying larger.
The outlook on charges is quickly altering from the optimism Wall Avenue was basking in earlier this 12 months. In Might, Reuters surveyed greater than 100 economists and located two-thirds now count on the primary price lower to return in September, whereas a month prior solely half believed this could be the primary lower. Likewise, the Might survey discovered 11 economists forecast a lower in July and none stated June—a month prior, these figures stood at 26 and 4, respectively.
‘Extraordinary spending’
Dimon, who has led JPMorgan since 2006, has made no effort to cover his considerations over how the U.S. will repay its money owed.
Whereas economists argue, and Dimon might agree, that spending over the previous 5 years has been needed, the actual fact stays that America’s debt-to-GDP ratio at the moment stands at round 122%, per the St Louis Fed.
And it’s due to this spending that Dimon is so satisfied a nasty “surprise,” stagflation, might come to go.
“I’m not saying it’s going to happen, I just give the odds much higher than other people,” Dimon added. “I look at the amount of fiscal and monetary stimulus that has taken place over the last five years—it has been so extraordinary, how can you tell me it won’t lead to stagflation?”
“It might not,” he stated. “But I, for one, am quite prepared for it.”
