JPMorgan CEO Jamie Dimon sees ‘storm clouds’ ahead for the US economy

JPMorgan CEO Jamie Dimon sees ‘storm clouds’ ahead for the US economy

Jamie Dimon, Chairman and CEO of JPMorgan Chase & Co., listens during a CEO Innovation Summit business roundtable discussion in Washington, DC, December 6, 2018.

Andre Harrer | Bloomberg | Getty Images

The risk that the Federal Reserve will accidentally tip the US economy into recession as it fights inflation is rising, according to JPMorgan Chase CEO Jamie Dimon.

The CEO of the largest U.S. bank by assets said on Wednesday economic growth will continue through at least the second and third quarters of this year, fueled by consumers and businesses plentiful with cash and paying down debt. on time.

“After that, it’s hard to predict. You have two other very important compensating factors that you’re all well aware of,” Dimon told analysts, citing inflation and quantitative tightening, or the reversal of buying policies. of Fed bonds. “You haven’t seen this before. I’m just pointing out that these are storm clouds on the horizon that may or may not disappear.”

Dimon’s remarks show how quickly major events can change the economic landscape. A year ago, he said the United States was experiencing an economic “Goldilocks moment” of strong growth coupled with manageable inflation that could last well into 2023. But stubbornly high inflation and a host of possible impacts of the Russian invasion of Ukraine have clouded this picture.

The risks were revealed on Wednesday, when JPMorgan posted a 42% drop in profits from a year earlier due to rising bad debt costs and market upheaval caused by the war in Ukraine.

Specifically, the bank took a charge of $902 million to build loan loss reserves, a sharp reversal from a year ago, when it released $5.2 billion in reserves.

JPMorgan made the decision – unusual as executives said borrowers of all income levels were still paying their bills – as the risks of a “Fed-induced” recession grew, according to Chief Financial Officer Jeremy Barnum. In the past, the Fed has raised rates to the point that the US economy is shrinking. Last month, the Fed raised its benchmark rate and said increases could come at each of the remaining six meetings this year.

Bank stocks have been hammered this year, despite the rise in interest rates, which tends to improve their credit margins. Indeed, parts of the yield curve have flattened and even inverted this year, which is a much-watched indication of a possible recession in the future.

JPMorgan executives have made it clear they don’t expect a recession; but this high inflation, exacerbated by the impacts of the war in Ukraine and Covid, as well as the actions of the Fed made it more likely than before. Managers must consider a variety of probability-weighted hypothetical scenarios to judge how much reserve to set aside.

“These are very powerful forces and these things are going to collide at some point, probably next year,” Dimon said on a media conference call. “And nobody really knows what’s going to happen, so I’m not predicting a recession. But you know, is it possible? Absolutely.”

In the event that a recession develops, the bank “would have to put a lot more” for loan loss reserves, Dimon told reporters. JPMorgan shares fell 3.4% on Wednesday and at one point hit a 52-week low.

“Wars have unpredictable results, you’ve seen that before in oil markets. Oil markets are precarious,” Dimon said. “Hopefully all of those things will go away and go away; we’ve got a soft landing and the war is over, okay. I just wouldn’t bet on any of that.”

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