Analysts are eagerly awaiting the day Jerome Powell announces interest rate cuts, but JP Morgan CEO Jamie Dimon fears Wall Street could face a nasty shock instead.
Dimon is concerned that the Fed may raise interest rates higher than their current peak in two decades rather than lower them.
Not only would that send shockwaves through the street, but the economy overall would not be prepared for this decision, he said.
“When we look at risk and interest rates, we’re not always looking to guess what the future is; [we are] “Kind of looking at a range of outcomes,” Damon said He told CNBC During the JP Morgan Global China Summit in Shanghai.
“Do I think prices could go up a little? Yes I do. And if they do is the world ready for it? Not really.”
It’s a warning that flies in the face of economists’ consensus.
Earlier this month, Reuters updated a running poll of economists who were asked when they expect the Fed to start cutting interest rates. Nearly two-thirds of economists surveyed, 70 out of 108, believe the first cut will occur in September, to a range of 5.00% to 5.25%.
Those expectations have shifted from more optimistic forecasts just a month ago, when 26 economists said they expected a cut in July and four said they expected a cut in June. By May, 11 countries were holding on to cuts in July, but no one thought a downward adjustment would occur in June.
Inflation is sticky
While Dimon’s position may be a departure from the consensus – the 68-year-old financial expert says bankers are “lulling” into a false sense of security – his logic is familiar.
“Could inflation be more persistent than people think? “I think the odds are higher than others think,” he explained. “Mostly because of the massive amount of fiscal and monetary stimulus. It’s still in the system. That could still drive some of that liquidity that you see, markets going up, the prices of some assets and things like that.
“So I’m just on the cautious side.”
In fact, inflation may not be as consistent as the Fed had hoped. The latest data from the US Bureau of Labor Statistics for April showed that the CPI rose 0.3% seasonally, after rising 0.4% in March.
However, the all-items index rose 3.4% during the 12 months ending in April, a slight increase compared to 3.5% during the 12 months ending in March.
And while some factors are working in the Fed’s favor — the Bureau of Labor Statistics reported earlier this month that U.S. employers added just 175,000 jobs in April — Dimon is not the first to warn that the Fed’s inflation battle could worsen. Before it gets better.
Last year, Citigroup CEO Jane Fraser – who is among the highest ranked luckThe World’s Most Powerful Women list has shown that if history is any guide, the second half of reining in inflation is always more difficult than achieving the initial decline.
Last October, she said that “all the numbers” indicated that the economy was on the verge of a soft landing, but she added that the second half of the economic plan was “the most difficult half.”
Dimon – who recently shocked the market by saying he might look to retire in the next five years – added that stubborn inflation could lead to what he considers the “worst” outcome for the US: stagflation.
He added: “I look at the set of outcomes, and again, the worst outcome for all of us is what you call stagflation, high interest rates, recession. That means corporate profits will go down, and we’ll get through all of that. I mean the world has been spared from that, But I think the odds are higher than others think.
