JPMorgan Chase & Co. CEO Jamie Dimon on Thursday said inflation remains a major concern but for now consumers are doing OK.
Dimon compared the plight facing the U.S. to a tale of two cities with a more prosperous situation giving way to a darker economic place in 2023.
“One city is now, with a strong consumer [that is] spending 10% more than last year….They can do that for about nine more months,” Dimon said early in his 30-minute talk at the Institute of International Finance’s (IIF) Annual Membership Meeting. “The offset of that is the future with inflation, which is higher and stickier than people initially thought. People have expected 3% [from the Fed rates] or 4% or 4.5% at the top.”
Dimon said “his gut” is telling him that the U.S. central bank could go higher than 4% or 4.5% to help tame inflation.
If the U.S. Federal Reserve tips the economy into a “mild” recession to cure inflation, it’ll be a better outcome than a long period of stagflation, which is inflation combined with lower growth, he said.
The Ukraine war continues to affect oil prices and supply and could once again cause a spike in oil prices because the energy complex remains “fragile”, Dimon said.
“I don’t know if it’s going to be a mild recession or a tough recession but in a tough recession you would see the S&P 500 20% down.”
Such a sharp drop in equities is just one of many outcomes that he has to consider as CEO of a major bank, he said.
Overall, Dimon said he has faith in Federal Reserve Chairman Jerome Powell, but said the central bank waited too long to start raising interest rates.
Asked about whether JPMorgan would stop loaning money for oil and gas exploration, Dimon said doing so would be worse for the environment because more countries will continue to burn coal if less harmful fossil fuels are not produced to meet energy needs.
“Cheaper oil and gas prices are important to transition out of coal and then eventually into renewables,” Dimon said.
Dimon’s comments came as U.S. equities absorbed fell and then recovered on worse-than-expected Consumer Price Index data and a day before JPMorgan reports its third-quarter earnings in choppy economic waters.
Also speaking to the issue of inflation at the IIF, BlackRock Inc.
CEO Larry Fink said indications of more tame economic conditions are not yet reflected in the raw data.
“I’m starting to see some of the threads that give me the view that inflation is not going to be as serious looking out a year or two,” Fink said.
While shorter-term trends such as supply chain constraints are pushing up prices, Fink is also seeing longer-term deflationary forces on the horizon such as lower population growth, a build-out of distribution network for products and reduced birth rates.
Dimon’s appearance at the IIF event comes just days after he told CNBC the S&P 500 could fall another 20%.
“It really depends on that soft-landing, hard-landing thing and since I don’t know the answer to that it’s hard to answer…it could be another easy 20%,” Dimon said in the CNBC interview.
Dimon also commented on Elon Musk and his revived Twitter deal in the same interview.
“I hope Elon cleans up Twitter,” Dimon said. “Like, for example, why can’t Twitter know who you are when you come on board, so they can eliminate all those people in the public square who are robots and emails and stuff like that, and it gives them a little bit of legal liability?”
In another widely quoted comment this year, Dimon predicted an economic storm on the horizon.
“Everyone thinks the Fed can handle this,” Dimon said. “That hurricane is right out there down the road coming our way. We just don’t know if it’s a minor one or Superstorm Sandy, or Andrew or something like that, and you better brace yourself.”
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