Analysts are eagerly awaiting the day when Jerome Powell announces rate cuts, but JPMorgan CEO Jamie Dimon fears Wall Street could suffer a nasty shock instead.
Dimon fears that instead of lowering interest rates, the Fed could raise interest rates even further than they have so far, namely above their current high in two decades.
He said not only would this send shockwaves down the street, but that the economy at large would be unprepared for this decision.
“When we look at risks and interest rates, we do not always try to guess the future, [we are] “We look at a range of outcomes,” Dimon says said CNBC during the JPMorgan Global China Summit in Shanghai.
“Do I think interest rates can rise a little bit? Yes, I do. And if that happens, is the world prepared for it? Not really.”
This caution contradicts the general consensus.
Earlier this month, Reuters updated an ongoing survey of economists who were asked when they expected the Fed to cut interest rates. Nearly two-thirds of economists surveyed (70 out of 108) expect the first cut to come in September, in a range of 5.00 to 5.25 percent.
These expectations have changed from a more optimistic forecast just a month earlier, when 26 economists expected a rate cut in July and four in June. In May, 11 economists expected a rate cut in July, but none believed there would be a downward revision in June.
Tough inflation
While Dimon’s approach may be a Departure from the general consensus– the 68-year-old financial expert says bankers have been “lulled” into a poor sense of security – his argument is familiar.
“Could inflation be more stubborn than people think? I think the probability is higher than other people think,” he explained. “Especially because of the enormous fiscal and monetary stimulus. They’re still in the system, they’re still perhaps providing some liquidity, markets going up, prices of certain assets and things like that.”
“So I’m rather cautious.”
In fact, inflation may not be as steady as the Fed had hoped. The latest data from the U.S. Bureau of Labor Statistics for April show that the consumer price index (CPI) rose a seasonally adjusted 0.3 percent, after rising 0.4 percent in March.
The overall index rose 3.4% in the 12 months to April, but this was a smaller increase than the 3.5% rise in the 12 months to March.
There are some factors in the Fed’s favor – the Bureau of Labor Statistics reported earlier this month that US employers added just 175,000 new jobs in April. But Dimon is not the first to warn that the Fed’s fight against inflation could get worse before it gets better.
Last year Citigroup CEO Jane Fraser – one of the highest ranking Fortunes The most powerful women List-explained that history is a guideThe second half of the fight against inflation is always more difficult than the initial reduction.
In October she said “all the numbers” suggested the economy was heading for a soft landing. However, she added that the second half of an economic plan is the “harder half.”
Dimon – the recently shocked the market saying he may want to retire in the next five years – adding that stubborn inflation could lead to what he sees as the “worst” outcome for the U.S.: stagflation.
He added: “I look at the range of possible consequences and again the worst for all of us is what is called stagflation, higher interest rates and recession. That means corporate profits will fall and we’ll get through all of this. I mean, the world survived that, but I think the odds were higher than other people think.”