Jamie Dimon warns government spending could keep interest rates high
JPMorgan chief says inflation could be ‘stickier’ than markets expect in annual letter to investors
JPMorgan Chase chief executive Jamie Dimon has warned that US inflation and interest rates could remain higher than markets expect because of high government spending.
In his annual letter to shareholders, the head of the largest US bank by assets said JPMorgan had gamed out strategies for interest rates going above 8 per cent and as low as 2 per cent.
“It is important to note that the economy is being fuelled by large amounts of government deficit spending and past stimulus,” Dimon wrote. “There is also a growing need for increased spending as we continue transitioning to a greener economy, restructuring global supply chains, boosting military expenditure and battling rising healthcare costs.
“This may lead to stickier inflation and higher rates than markets expect,” he added.
Dimon’s comments on Monday come as financial markets have steadily pared back their expectations for how many rate cuts the US Federal Reserve will make this year. Investors are now forecasting at most three cuts from the current 23-year high of 5.25-5.5 per cent, down from six cuts previously.
The letter from one of the banking industry’s longest-serving chief executives is widely read across Wall Street. He often uses the missive to opine on issues well beyond JPMorgan’s business.
Dimon, 68, warned that a boom in private credit could become an “unexpected risk in the markets”, arguing that the fast-growing industry was full of “very smart and creative” operators but “not all players are that good”.
“And problems in the private credit market caused by the bad players can leak on to the good ones, even though private credit money is locked up for years,” Dimon said. “If investors feel mistreated, they will cry foul, and the government will respond by putting a laser focus on the business.”
He said it was a “reasonable assumption that at some point regulations will focus on the private markets as they do on the public markets”.
Dimon warned that recent geopolitical events “may very well be creating risks that could eclipse anything since World War II”, pointing to Russia’s invasion of Ukraine and the current violence in the Middle East.
“The fallout from these events should also lay to rest the idea that America can stand alone,” Dimon said. “Of course, US leaders must always put America first, but global peace and order are vital to American interests.”
Dimon is a self-described Democrat but has said in recent years that his views have become less aligned with the party. He had a one-on-one lunch at the White House last month with vice-president Kamala Harris, the Financial Times reported.
On artificial intelligence, Dimon said JPMorgan was “completely convinced the consequences will be extraordinary” and likened its potential impact to that of the printing press, electricity and the internet.