When it comes to Wall Street bandwagons, Jamie Dimon is often a cautionary voice in the crowd. While the market is keenly eyeing a rate cut in 2024, the CEO of JPMorgan Chase is not convinced that the Fed has put an end to recession fears forever.Thank you for reading this post, don't forget to subscribe!
Many big banks believe the recession—if it happens—will be mild.
For example, Bank of America believes the US economy will soften, Citi says a recession is “likely”, and Goldman Sachs believes the chance of a recession is just 15%.
But Dimon warned colleagues not to be lulled into a false sense of security, rejecting calls for so-called “Goldilocks” growth, where the economy is neither too hot nor too cold.
It’s a theory supported by Wharton professor emeritus Jeremy Siegel, who said this week: “The data is not strong enough to encourage Federal Reserve tightening, and certainly weak enough to trigger a slowdown in corporate profits.” Not there.”
Dimon disagrees, saying that a number of back-seat issues could hamper the front over the next 12 months.
“The market is pricing in a soft situation right now,” he told Fox Business in an interview released yesterday.
“You see that in equity prices, the spread of credit is very narrow. but that extra money [consumers] The trillions of dollars received during Covid are, in a way, getting exhausted. It has been thrown out for various reasons but will be out this year.
“The government has a huge deficit which will impact the markets. I’m a little skeptical of this Goldilocks scenario. I still think the chances of it not having a soft landing are higher than others.
The US national debt has risen to $34.01 trillion following a round of fiscal deficits during and after the coronavirus pandemic.
This record-breaking figure has alarmed analysts and Maya McGuinness, chair of the Committee for a Responsible Federal Budget, described the milestone as “a truly disappointing ‘achievement’.”
But while his outlook is less optimistic than others, Dimon, who has led JPMorgan for nearly 20 years, said leaders will be able to weather the recession.
He believes the outcome will not be “terrible” whether it is a mild or severe recession, adding: “In business we all have to learn to deal with the ups and downs of the economy. But I think the cross-currents will be quite “Are high: money is running out, rates are high, QT (quantitative tightening) is not in yet.”
Dimon also noted that the “cross-currents” he is concerned about are not limited to government or Fed action, again reiterating points about geopolitical tensions.
Russia’s invasion of Ukraine and the Israel-Hamas conflict have “impacted oil, gas, food, migration, economic relations around the world,” he said. “Geopolitical things are something you can’t look at this year and say it won’t have any impact.”
Return to the 1970s
Analysts were enjoying a trip down memory lane at the end of 2023: Many were looking back through the decades to see how those circumstances might inform modern economists.
For example, Deutsche Bank said the 2020s will resemble the 1970s due to rising energy prices and rising geopolitical tensions.
UBS, meanwhile, took a much more positive view, saying the economy was returning to the Clinton era of the 1990s.
Goldman Sachs rejected the use of comparison altogether, saying the strategy was “too simplistic” and likely to be wrong.
Among the scenarios, Dimon is consistent with Deutsche Bank’s 1970s approach.
“The $2 trillion fiscal deficit, the infrastructure and IRA acts, the green economy, the militarization of the world, trade restructuring, are all inflationary. “It feels a bit like the 1970s to me,” he said.
As a result, inflation could fall to the Fed’s 2% target before returning to 3% or higher, he said.
Consumers look good, but that could change
Overall, economists are surprised and thrilled by the resilience of American consumers.
Despite fears of ‘YOLO spending’ ending and “cracks” appearing at the bottom end of the spending ladder, shoppers spent decisively over the Black Friday and Christmas holidays.
Dimon echoed fellow banking veteran Brian Moynihan, CEO of Bank of America, in saying consumers are in pretty good shape.
“So the good news is that consumers have jobs,” Dimon said. “Wages are finally rising more at the bottom, home prices are rising which is good for their balance sheets, credit is normalizing but still low, stock prices are up. “The consumer is in a good position.”
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