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JPMorgan CEO Jamie Dimon sees 'lot of inflationary forces in front of us'

'If you have higher rates and - God forbid - stagflation, you will see stress in real estate and leveraged companies, and private credit,' Dimon said

Jamie Dimon, CEO JPMorgan

Image: Bloomberg

Bloomberg

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By Katherine Doherty and Francine Lacqua

Jamie Dimon said he’s still more worried about inflation than markets appear to be.
 
The JPMorgan Chase & Co. chief executive officer said significant price pressures continue to influence the US economy and may mean interest rates will be higher for longer than many investors are expecting. He cited costs linked to the green economy, re-militarization, infrastructure spending, trade disputes and large fiscal deficits. 

“There are a lot of inflationary forces in front of us,” Dimon said in an interview on Bloomberg Television Thursday. “The underlying inflation may not go away the way people expect it to.”

The S&P 500 and Nasdaq 100 closed at record highs Wednesday amid optimism over monetary policy easing after a measure of underlying US inflation cooled in April for the first time in six months. Dimon said that markets have been healthy for a while, but that doesn’t necessarily predict the future. 

“If you have higher rates and — God forbid — stagflation, you will see stress in real estate and leveraged companies, and private credit,” Dimon said.

“Stocks are very high, and I think the chance of inflation staying high or rates going up are higher than people think,” the CEO said. “My view is whatever the world is pricing in for a soft landing, I think it’s probably half of that. I think the chances of something going wrong are higher than people think.”

The CEO has been warning for months that inflation could be stickier than many investors are predicting, and wrote in his annual letter to shareholders that his bank is prepared for interest rates ranging from 2% to 8% “or even more.”

Dimon said that “a lot of happy talk” is why markets aren’t pricing these elements in.

Even though a bigger surprise would be higher rates, Dimon said that geopolitics could create the “main stress that we’re worried about” amid the impact those dynamics have on oil and gas prices, trade and alliances. With war in Ukraine, the situation in the Middle East, tensions in North Korea and the use of nuclear blackmail, the geopolitical situation is “very tense,” he said.

When it comes to China, the right thing for America is to “fully and deeply” engage, he said. Still, the fragile relationship between the two countries makes banking in the country — where Dimon said JPMorgan has roughly 1,500 multinational clients — a riskier prospect.

“They’re not leaving China, so we’re going to serve our clients there, we’re just much more cognizant the risk is higher,” he said. “You look at China from a risk-reward basis, it used to be very good, it’s not so great any more.”

Basel III
 
The financial world has been in a heated debate over US proposals tied to what’s called the Basel III Endgame — an international regulatory overhaul initiated more than a decade ago in response to the financial crisis of 2008. US regulators have decided to adjust the original proposals following substantial backlash. Dimon reiterated his comments that the proposals are excessive.

“I would love to know what the end game is,” Dimon said. “Regulators should answer the question: What do you want — How do you want the system to work?”

JPMorgan has been boosting headcount and compensation at a time when many banks have been cutting back. The firm is coming off its sixth year of record revenue, but recent months are showing some signs of pressure.

The bank’s net interest income, a key source of revenue, ended a streak of seven record quarters. Dimon blamed deposit margin compression — tightening of profits between what the bank earns on loans and pays out on deposits — and lower deposit balances in the consumer business for the sequential decline.

Shares of the company, which are up 19% this year, advanced 0.2% to $202.60 at 10:09 a.m. in New York. 

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First Published: May 16 2024 | 11:04 PM IST

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