JPMorgan Chase chief Jamie Dimon warned that US interest rates could surge to more than 8% in the coming years as record US debt and ongoing international conflicts complicate the fight to tamp down inflation.
“Huge fiscal spending, the trillions needed each year for the green economy, the remilitarization of the world and the restructuring of global trade — all are inflationary,” Dimon wrote in his annual letter to JPMorgan shareholders released Monday.
Though Dimon told investors that he expects the Federal Reserve to dodge a so-called “soft landing” — by cooling down inflation without setting off a recession — he is also prepared for a more concerning outcome.
“These markets seem to be pricing in a 70% to 80% chance of a soft landing,” Dimon wrote in his letter earlier reported on by The Wall Street Journal. “I believe the odds are a lot lower than that.”
“Economically, the worst-case scenario would be stagflation,” which would see the economy staying stagnant and “would not only come with higher interest rates but also with higher credit losses, lower business volumes and more difficult markets,” he added.
Still, Dimon said JPMorgan — the biggest bank in America by asset size — “would continue to perform at least okay,” and pointed to the Wall Street giant’s record of nearly $50 billion in profits last year.
Despite a sharp rise in interest rates in recent years, the Fed hasn’t even been able to get inflation under 3%.
In a turnaround from policymakers’ earlier statements that there would be three interest-rate cuts this year, Fed Governor Michelle Bowman said on Friday that interest rates may even move higher.
“While it is not my baseline outlook, I continue to see the risk that at a future meeting we may need to increase the policy rate further should progress on inflation stall or even reverse,” Bowman said in prepared remarks to a group of Fed watchers in New York on Friday.
“Reducing our policy rate too soon or too quickly could result in a rebound in inflation, requiring further future policy rate increases to return inflation to 2% over the longer run,” she added, per CNBC.
Per the latest Consumer Price Index — which tracks changes in the costs of everyday goods and services — inflation rose 3.2% in February, yet another stubbornly high figure that doesn’t inspire interest rate cuts.
Consumer prices have not fallen year-over-year since President Biden’s term began in January 2021.
The closest the economy has gotten to a yearly decrease since Biden took office was in July 2022, when the inflation rate remain “unchanged,” at a sky-high 8.5%.
Overall, prices are up a staggering 19% since December 2020, the month before Biden moved into the White House — despite the president’s Bidenomics agenda, which he has consistently claimed works to “reduce the [government’s] deficit.”
However, Treasury data shows the red ink topped $1.7 trillion in 2023 — a sum that nearly doubled over the course last year.
Dimon has also sounded the alarm that the US debt needs to be tackled before it results in a crisis.
“It is a cliff, we see the cliff,” Dimon told Fox in January. “It’s about 10 years out, we’re going 60 miles an hour [toward it].”
Today, the debt-to-GDP ratio is above 100% — 123% to be exact, per the International Monetary Fund — and is projected to reach 130% by 2035.
Hedge fund billionaire Ken Griffin was critical of the US government’s mounting debt in his own letter to shareholders last week, where he warned that future generations will face dire consequences if America goes deeper into the hole.
“The surging US public debt is a growing concern that cannot be overlooked,” Griffin, founder and CEO of Citadel, penned in his 2023 year-end investor letter released last Monday. “We must stop borrowing at the expense of future generations.”
Historically, increases in the national debt — which is currently hovering at $34.58 trillion — are driven by high unemployment rates, plus the decreased tax revenues and increased government spending on stimulus programs that come with it.
“It is irresponsible for the US government to incur a deficit of 6.4% when unemployment is hovering around 3.75%,” he wrote.
