JPMorgan Chase & Co (NYSE:JPM) CEO Jamie Dimon has hinted at further monetary tightening from the US Federal Reserve, despite two consecutive meetings where interest rate increases were paused. In an interview with Yahoo Finance Live, Dimon suggested a potential hike in benchmark interest rates between 0.25 and 0.75 percentage points. The federal funds rate has remained steady at 5.25%-5.5% since September, providing temporary relief to American borrowers.
Dimon's stance comes against the backdrop of the Federal Reserve's aggressive measures to combat inflation, which peaked at 9.1% mid-2022. Since early 2022, the Fed has raised rates 11 times. The JPMorgan CEO's assessment takes into account the September inflation rate of 3.7%, exceeding the Fed's target of 2%, and a robust US economy marked by a two-year high in third-quarter GDP growth at 4.9% and stable unemployment rates.
In a subsequent Yahoo Finance interview, Dimon supported the Federal Reserve's swift rate hikes and advised a pause to assess their effects on financial and credit conditions. The Federal Open Market Committee (FOMC) has kept the fed funds rate at a 22-year peak for two sessions, with future decisions favoring tightening as per Jerome Powell's press conference.
Dimon warned borrowers of a "double whammy" as credit spreads could rise with rates. The Fed's actions have already impacted home sales, auto sales, and credit card loans without affecting home prices, and are expected to eventually influence businesses at refinance and floating rates.
The CEO further cautioned that quantitative tightening might unsettle markets as seen in March 2020 and 2019, with treasuries showing initial signs. Despite Powell signaling an 8% mortgage rate, Dimon argued the current scenario differs due to continued fiscal stimulus, low unemployment, and robust consumers.
Dimon expressed concern over potential long-term inflation and a record peacetime deficit of $2 trillion due to deficit financing, which could lead to persistently high long-term rates and extended inflation. He also highlighted geopolitical tensions like the Ukraine war and Israeli conflict as significant factors influencing global trade and alliances.
On the day of the interview, the iShares TIPS Bond ETF, which tracks inflation-protected U.S. Treasury bonds, closed up 0.87% at $103.24.
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