A prominent financial CEO is sending a warning that the U.S. economy could soon take a turn for the worst.
While speaking at the Barclays Global Financial Services Conference, which was held on Monday in New York, Jamie Dimon, the CEO of JPMorgan Chase, said there are significant headwinds to the U.S. economy. This includes the tightening of global monetary policy by central banks, out-of-control government spending and geopolitical tensions.
“We’ve been spending money like drunken sailors around the world. This war in Ukraine is still going on. Those are really big ‘buts.’ To say the consumer is strong today, meaning you are going to have a booming environment for years, is a huge mistake.”
Inflation has been on a steady decline for the last few months. That, combined with the fact that the labor market has also proven resilient, has led some economists to say that a “soft landing” is in the future. Dimon, though, said that he’s skeptical that the economy will continue to remain good.
Just last year, he said that an “economic hurricane” was on the horizon.
Some of the concerns he talked about on Monday included the ongoing credit tightening campaign by the Federal Reserve and the fact that the federal government continues to rely on deficits.
He also said there’s likely to be a “downstream impact” of things such as making more industries eco-friendly, remilitarization across the globe and the Inflation Reduction Act.
One thing that Dimon pointed out was that tightening monetary policy often has a lag to it. This means it’s hard to predict when the increased interest rates will actually start to have a true effect on the economy. As such, he suggested that business outcomes could drastically change over the next year.
As he said:
“Businesses feel pretty good because they look at their current results, they’re not so bad. But, those things change. And we don’t know what the full effect of all these things are going to be 12 or 18 months from now.”
In the last year, the Federal Reserve has increased the benchmark interest rate 11 times, all in an effort to crush inflation. Those increases raised the interest rates from a near zero level during the height of the pandemic all the way to more than 5%.
That marks the fastest pace at which the Federal Reserve tightened the credit market since back in the 1980s.
Even though inflation continues to decrease, Fed officials have said that more rate increases are still a strong possibility for 2023. What they’re looking for before they stop increasing rates is substantial evidence that the high levels of inflation are going to be gone for good.
The next meeting of the Fed is set for September 19-20. It’s widely expected that, at that meeting, interest rates will remain the same as they are now. If that happens, then the additional rate increase won’t come until the fourth quarter.