Jamie Dimon says interest rate hikes and Ukraine war will cause economic "hurricane"
Jamie Dimon is predicting an economic "hurricane" this year as fallout from Russia's war in Ukraine compounds the effects of surging inflation.
The CEO of JPMorgan Chase has been warning about risks facing consumers and the economy, telling analysts late last month that he sees "storm clouds" on the horizon. Dimon recently upgraded his weather-themed forecast in a discussion Wednesday at a financial conference, detailing ways the Federal Reserve's moves to raise interest rates could cause stormy weather this year.
"Right now it's kind of sunny, things are doing fine, everyone thinks the Fed can handle this. That hurricane is right out there, down the road, coming our way," Dimon said, speaking at the Bernstein Strategic Decisions Conference in New York.
"We just don't know if it's a minor one or Superstorm Sandy — and you better brace yourself," he added.
Three headwinds
Dimon said three factors — Russia's war in Ukraine, the government-fueled consumer spending boom and the Fed's attempt to unwind its balance sheet — would combine to create an "unprecedented" situation. The biggest land war in Europe in more than 70 years is creating uncertainties in a region that supplies many of the world's necessities, he said.
"Wars go bad. They go south. They have unintended consequences. And this happens to be right in the commodity markets of the world — wheat, oil, gas and stuff like that," he said.
The disruption in grain shipments from Russia and Ukraine, which together provide nearly one-third of the world's wheat supply, is already leading to skyrocketing food prices in Africa and Asia, with international aid groups warning that hundreds of thousands of people could starve this summer. Meanwhile, rising energy prices are squeezing the budgets of households and nations alike.
Against this backdrop, Dimon said, the Fed also has to scale back a government aid-fueled spending boom during the coronavirus recession, including unemployment benefits and business loans that led Americans to save $2 trillion above normal levels. The U.S. central bank expanded its balance sheet to an unprecedented degree as it bought bonds to keep interest rates low. Unwinding that process could destabilize the economy.
"You're looking at something they're going to be writing history books on for 50 years," Dimon said, adding that he is girding for "huge volatility."
Dimon's dire warnings underline the economic uncertainty facing the nation: While the job market is at its tightest level in decades, consumer prices are rising at the fastest clip since the 1980s.
Yet many economists, as well as other prominent figures on Wall Street, have more confidence that the economy will avoid a major downturn. Speaking at the same conference, Bank of America CEO Brian Moynihan pointed to steady consumer spending, plentiful jobs and solid wage gains in making the case that the U.S. is unlikely to tumble into recession anytime soon.
"We're in North Carolina. You've got hurricanes that come every year," Moynihan quipped. "Nobody… has an actual recession predicted in the next two years other than one person out of 40-odd people," he said.
While he conceded the Fed "has a tough job to do," Moynihan also said the central bank should continue to raise rates aggressively.
'Will they slow down the economy? That's their job," he said. "The reality is, it's the best thing about the tough job — the part that makes it tough is actually a good thing, a low unemployment and good wage growth and good consumer spending."
Layoffs around the country are at their lowest level in two decades, and with nearly two open jobs for every unemployed American the economy is close to regaining all the jobs lost in 2020. Still, a recent hiring freeze by major technology companies and worse-than-expected earnings reports from large retailers has aroused concerns that the economic expansion is coming to an end.
Economists surveyed by Bloomberg put the odds of a recession within the next 12 months at about 30%.