JPMorgan Chase CEO Jaime Dimon issued a stark economic warning, saying rising commodity prices and tightening monetary policy could deal a “hurricane” blow to the US economy.
Speaking at a banking conference in New York on Wednesday, Dimon warned the gathering of investors and analysts: “You better brace yourself.”
“I said there are storm clouds, big storm clouds, but it’s a hurricane,” the US banking giant said.
“Right now it’s kinda sunny, things are going great, everybody thinks the Fed can handle this. This hurricane is right there, down the road, coming our way. We don’t know if it’s a small storm or Superstorm Sandy .
“JPMorgan is bracing ourselves and we’re going to be very conservative with our balance sheet,” he said.
JPMorgan Chase CEO Jamie Dimon has issued a stark economic warning, saying rising commodity prices and tightening monetary policy could deliver a “hurricane” blow.
On Wednesday, the national average cost of gas rose to a record $4.67 a gallon
Dimon pointed to two major factors that could affect the economy: the Federal Reserve’s imminent move to sell assets, also known as quantitative tightening. The war in Ukraine has disrupted global commodity markets.
With US gasoline prices hitting new highs on Wednesday, and oil settling at around $115 a barrel, Dimon said the price of oil “almost shot up” from here.
“You haven’t had a European land war since 1945, and the complication for Ukraine is that we don’t know the outcome,” he said. “Wars get worse, go south, have unintended consequences.”
After EU leaders agreed to a phased embargo on Russian oil, sending crude prices soaring, Dimon predicted the conflict in Ukraine would continue to fuel commodities, saying $150 to $175 oil prices were likely “in the cards.” “.
As a side note for “those who love climate change,” Dimon said that high oil prices will only increase greenhouse gas emissions by forcing poor countries to use more coal.
Dimon also expressed concerns about whether the Fed can safely go down the path of tightening monetary policy without crashing the economy.
The Fed’s balance sheet (above) swelled to $9 trillion as the central bank bought bonds. Now the Fed is trying to reverse course and sell assets
In April, consumer prices jumped 8.3 percent from a year earlier, just short of the fastest such rise in four decades, set one month earlier.
The Federal Reserve on Wednesday began shrinking its $9 trillion balance sheet, selling bonds it has amassed as it seeks to prop up the economy amid the COVID-19 pandemic.
During the pandemic, the Fed has been flooding the economy with cash at a record rate, keeping interest rates near zero and buying billions of bonds every month, also known as quantitative easing (QE).
Now, with rampant inflation at a 40-year high, the Fed is struggling to restore price stability by raising rates, and is selling some of the trillions of bonds it has accumulated, also known as quantitative tightening (QT).
“And the new part of this isn’t the price hike, it’s QT,” Dimon said. “We’ve never had QE like this before, so we’ve never had a QT like this, so you’re looking for something they can write the history books on for 50 years.”
Dimon argued that aspects of the Fed’s loose monetary policy during the pandemic may have “backfired,” saying that “negative (effective) rates may have been a huge mistake.”
“In my view, they should do QT. They have no choice because there is a lot of liquidity in the system, and they have to remove some of the liquidity to stop speculation,” Dimon said.
The US economy unexpectedly contracted in the first quarter, declining by 1.5 percent due in part to a widening trade deficit.
Speculative assets like technology stocks, which rallied during the easy money days of the pandemic, are back on the ground as the Federal Reserve tightens policy, with the Nasdaq Composite down 24 percent since the start of the year.
After spending most of May dealing with bear territory, the S&P 500 has lost $1 trillion in market value since the end of December.
Fears of a recession are growing. The US economy unexpectedly contracted in the first quarter, declining by 1.5 percent due in part to a widening trade deficit.
But in the face of harsh inflation rates, the Federal Reserve had no choice but to tighten easy money policies in an effort to rein in consumer prices.
In April, consumer prices jumped 8.3 percent from a year earlier, just short of the fastest such rise in four decades, set one month earlier.
Although many American workers were receiving large wage increases, in most cases their wages did not keep pace with inflation.
High inflation also poses a political threat to President Joe Biden and congressional Democrats as the midterm elections approach.
A poll last month by the Associated Press-NORC Center for Public Research found that Biden’s approval rating has reached the lowest point of his presidency — only 39% of adults approve of his performance — with inflation as a contributing factor frequently cited.
A 12-month increase in the consumer price index is observed for each of the past 12 months
Only higher gasoline prices are expected to lead to more inflation, and on Wednesday the national average cost of gas rose to a record $4.67 a gallon, as prices jumped 48 cents in May alone, the Guardian reported. AAA.
The summer travel season kicked off just days ago with the Memorial Day holiday, and unless oil supplies expand quickly, prices at the pump may only continue to rise in the coming months.
“So far, the pent-up desire to travel due to the pandemic is outweighing the higher infusion prices for many consumers,” said Andrew Gross, a spokesperson for AAA.
If pump prices continue to rise, will people change their summer travel plans? It is not clear after that.
Data on Wednesday showed that although US employment fell in April, it remained at high levels, indicating continued wage increases as companies scramble for workers, which will contribute to inflation remaining uncomfortably high.
San Francisco Fed President Mary Daly said she expects a half-point hike in interest rates at the next two meetings as the central bank fights high inflation, raising rates to 2.5% ASAP.
This was in line with comments from Federal Reserve Chairman Christopher Waller on Monday.
