JPMorgan’s boss has warned that the worst interest rate pain could still lie ahead for businesses and households already scarred by a historic round of rate hikes.
The Federal Reserve kept interest rates at 5.5 percent earlier this month after 11 consecutive hikes in an aggressive effort to cool the economy, which was overheating after being flooded with easy money during the pandemic.
But the Fed has warned that inflation has not yet been defeated and that more surges could follow, spooking markets amid widespread predictions of a recession in the coming year.
JPMorgan CEO Jamie Dimon said the Fed was forced to make another rate hike at its last meeting because the effect of a jump to 5 to 7 percent would be much greater than the increase from 3 to 5 percent.
“Warren Buffett says that at low tide you discover who swims naked,” the CEO told the Times of India. ‘That will be the tide that will turn.’
Jamie Dimon, CEO of JPMorgan Chase, said many Americans are unprepared for further increases in bank rates
Base rates have been at historic lows during the pandemic, causing pain for millions of borrowers that could rise further
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Interest rates are at a 22-year high after the Fed warned it would do whatever it took to bring inflation down from a high of 9.1 percent in June last year.
According to the Mortgage Brokers Association, the average monthly mortgage payment for a U.S. home rose from $1,191 in January 2020 to $2,161 in July of this year.
Most economists expect interest rates to peak between 5.75 and 6 percent early next year, but inflation has risen in the past three months due to continued pressure from a tight labor market and the ongoing war in Ukraine.
Economists estimate the chance of a recession in the US next year at 55 percent, but hopes for a ‘soft landing’ for the economy would disappear with a bank interest rate of 7 percent, Dimon warned.
“Going from zero to 2 percent was virtually no increase,” he explained.
‘The move from zero to five percent may have taken some people by surprise, but no one would have considered five percent out of the realm of possibility.
“I’m not sure the world is ready for 7 percent.”
The rise in mortgage costs was followed by rising house prices, which rose from $322,000 to $479,000 in the two years to the end of last year.
But they have since fallen to $416,000 as higher bank rates have deterred buyers, prompting analysts to warn of a “mortgage time bomb” with millions trapped in homes they can no longer afford.
A further rise in bank rates would strengthen the dollar, further hitting exporters already suffering from the deterioration of international relations and the slowdown in the Chinese economy.
“The world is certainly not prepared for a Federal Reserve interest rate of 7 percent,” Charlie Jamieson of Jamieson Coote Bonds told Bloomberg Television on Tuesday.
“At that level we would expect to see deflationary asset development, lots of asset bubbles to burst, and that simply wouldn’t be sustainable.”
But Dimon, who has led his bank since 2004, warned that the war in Ukraine could ultimately prove a greater danger to the US economy than temporary inflation problems.
“I think what worries me most is the geopolitical situation, and we don’t know what the effect of that is on the economy,” he told CNBC.
Federal Reserve Chairman Jerome Powell has warned homeowners that more mortgage rate hikes may be coming
According to the Mortgage Brokers Association, average monthly mortgage payments have nearly doubled in three years
‘Much more important to me are the war in Ukraine, the oil, gas and food migration – it affects all global relations – and very importantly, that between America and China.
“I’m an American patriot, so governments get to decide foreign policy, not JPMorgan, but I think Americans need to stop thinking China is a 10-foot giant.”
He said Russia’s invasion of Ukraine has made every country increasingly nervous about its own national security and access to vital imports.
“We’ve dealt with inflation before, we’ve dealt with deficits before, we’ve dealt with recessions before, and we haven’t seen anything like this since World War II,” he added.