JPMorgan Chase CEO Jamie Dimon has expressed concerns about the escalating battle against inflation, suggesting that it may worsen before improving. In an interview with the Times of India, Dimon warned that if the Federal Reserve continues to raise interest rates to combat inflation, it could be a painful process. He stated, “I am not sure if the world is prepared for 7%.” Dimon made these remarks during a JPMorgan investor summit in Mumbai, India.
These comments have added to the prevailing unease on Wall Street, driven largely by fears of prolonged high-interest rates imposed by the Fed. As a result, the Dow Jones Industrial Average fell nearly 300 points or 0.9%, and the Nasdaq declined by 1.2% in recent trading.
Since the beginning of last year, the Federal Reserve has significantly increased interest rates, going from near-zero levels to slightly over 5%. Dimon emphasized the need for businesses to prepare for the possibility of a 7% interest rate, particularly in a scenario of stagflation where lower economic activity coincides with high interest rates. He quoted Warren Buffett’s famous saying, “It’s only when the tide goes out that you know who’s been swimming naked,” suggesting that a downturn reveals those who have taken excessive risks.
Dimon cautioned that an additional two-percentage-point hike in interest rates would be even more painful than the previous ones, likening it to the tide receding. While Dimon mentioned the risk of 7% interest rates, it’s worth noting that Fed officials have not publicly endorsed this scenario. In fact, Fed officials recently projected only one more rate hike this year, followed by rate cuts in the next year. The futures market also indicates little likelihood of rates reaching 6%, let alone 7%.
In the interview with the Times of India, Dimon also addressed the series of U.S. bank failures earlier this year. JPMorgan acquired First Republic Bank during its collapse. He expressed the view that while a few bank failures are not necessarily a bad thing, if they disrupt the financial system, regulatory adjustments may be needed to prevent such havoc.
