Jamie Dimon, Chairman and CEO of JPMorgan Chase & Co., is listening during a Business Roundtable CEO Innovation Summit discussion on December 6, 2018, in Washington, DC.
Andrew Harar | Bloomberg | Getty Images
According to Jamie Dimon, CEO of JPMorgan Chase, the Federal Reserve is accidentally increasing the risk of the US economy heading into recession as it fights inflation.
The CEO of the largest US bank in terms of assets said on Wednesday that economic growth would continue at least until the second and third quarters of this year, with consumers and businesses flush with cash and repay loans on time.
“After that, it’s hard to predict. You’ve got two other very big countervailing factors that you’re all too aware of,” Daemon told analysts, referring to inflation and quantitative tightening, or reversing the Fed’s bond-buying policy. “You’ve never seen it before. I’m just pointing out that the storm clouds on the horizon that may be invisible may not be.”
Daemon’s comments show how quickly big events can change the economic landscape. A year ago, he said the United States was enjoying an economic “Goldilocks moment” of high growth that could last until 2023.
The risks were seen on Wednesday, when JPMorgan lost 42% of its profit compared to a year ago due to the war in Ukraine, bad debts and increased costs for market volatility.
In particular, the bank charged 902 million to create a debt-loss reserve, a complete reversal from a year earlier, when it released $ 5.2 billion in reserves.
According to CFO Jeremy Bernam, the “Fed-induced” recession has taken its toll – and JPMorgan’s move is unusual because executives say all income-level borrowers are still paying their bills. In the past, the Fed has raised rates as the US economy shrinks. Last month, the Fed raised its benchmark rate and said it could increase each of the remaining six meetings this year.
Despite rising interest rates, the bank’s stocks have been hit this year, which continues to improve their loan margins. This is because some parts of the yield curve this year have flattened and even reversed, indicating a high observation of a possible recession in the future.
JPMorgan executives made it clear that they were not predicting a recession; But that high inflation, the impact of the Ukraine war and the Covid, as well as the Fed’s actions have made it even more promising than before. To judge how much reserve should be set aside, managers need to conduct surveys in a variety of hypothetical, probability-weighted situations.
“These are very strong forces and these things are going to clash at some point, probably sometime next year,” Daemon said during a media conference call. “And no one really knows what’s going to happen, so I’m not predicting a recession. But you know, is it possible? Absolutely.”
Damon told reporters that if a recession occurs, the bank will have to “do more” to reserve debt losses. Shares of JPMorgan fell 3.4% on Wednesday, hitting a 52-week low at one point.
“The war has unintended consequences, as you’ve already seen in the oil market. Oil markets are uncertain,” Dimon said. “I hope all of these things disappear and go away; we’ve had a soft landing and the war is over, okay. I won’t bet on all of this.”