Wall Street may be ready to declare victory over sky-high inflation, but Jamie Dimon thinks the fight is far from over.
The head of JPMorgan Chase & Co. says investors will have to endure an extended period of high interest rates as price pressures are exacerbated by rising costs, rising defense spending, a ballooning budget deficit and a soaring national debt. Stated.
“There are many inflationary forces before us.” Dimon told Bloomberg TV on Thursday.
“Underlying inflation may not resolve as quickly as people expect.”
Dimon’s comments came at about the same time the Dow Jones Industrial Average briefly surpassed the 40,000-point mark for the first time in history, before retreating to just below that mark around 1 p.m. ET.
The Dow Jones Industrial Average is up an astonishing 6% since January 1st, while the S&P 500 index is up more than 12% during the same period.
The stock market has been buoyed by strong earnings reports from tech unicorns and retail giants, as well as indications from the Federal Reserve that it is done raising benchmark interest rates.
Wall Street investors were further encouraged earlier this week by the latest consumer price index report showing inflation slowing slightly, raising the possibility that the Fed will cut interest rates later this year.
But Dimon said it’s too early to open bottles of champagne, especially given the possibility that “stagflation” (a term used to describe an era of high interest rates with slow economic growth and high unemployment) could rear its ugly head. said.
“If interest rates go up and we have, uh, stagflation, that’s going to put stress on real estate, leveraged companies and private credit,” Dimon told Bloomberg TV. .
Dimon believes Wall Street investors are too optimistic about the future of the economy.
“Stock prices are so high that I think it’s more likely than people think that inflation will stay high or that interest rates will rise,” said the 68-year-old head of the world’s largest financial institution. Told.
“My view is that the world is probably factoring in about half of that for a soft landing. I think the chances of something going wrong are higher than people think.”
In his annual letter to JPMorgan shareholders, Mr. Dimon wrote that the bank was preparing for the contingency that the Fed could raise interest rates further — a prospect that central bank chairman Powell said was ” Not likely.”
Dimon told Bloomberg TV that Wall Street buys into “a lot of happy talk” around interest rates.
He said geopolitical turmoil could further accelerate inflation and could cause oil and gas prices to rise significantly, resulting in “the main stress that we’re concerned about.” I warned you that there is.
Dimon said he was concerned about the “very tense” geopolitical situation, citing Russia’s invasion of Ukraine, deteriorating U.S.-China relations, the ongoing Israeli-Hamas conflict, and continued conflict with nuclear-armed North Korea. He said there was.
The bank’s chief urged the United States to engage “fully and deeply” with China, which is locked in a dispute over a range of issues including Taiwan, trade and human rights.
JPMorgan serves approximately 1,500 customers doing business in China. Dimon said ongoing tensions between Washington and China complicate his bank’s business interests.
“They’re not leaving China, so we’re going to serve our customers there. We’re very aware that the risks are higher,” he said.
“If you look at China from a risk-reward perspective, it used to be very good, but now it’s not so good.”
Dimon warned Wednesday that the U.S. needs to pay down its budget deficit sooner rather than later, before the issue escalates into a “much more unpleasant” crisis in the future.
“America has spent a lot of money,” Dimon told Sky News on Wednesday.
Asked if the United States would be affected in the next two years if it failed to control federal spending, he said: Mr Dimon told Sky News.“I don’t think this is a huge turnaround and I don’t think it will continue for years to come, but I think that’s why inflation is going up.”
