- Jamie Dimon predicts that unprecedented quantitative tightening measures, currently underway by the Fed, could lead to a recession.
- Looking at the current macro scenario, Dimon asks investors to be very conservative with their investments.
JPMorgan CEO Jamie Dimon has a warning to the global investor community regarding an incoming economic hurricane. Dimon’s comments came on the current state of global macros and broader economic conditions.
Thus, he has asked investors to stay prepared for whatever’s coming. Speaking at a financial conference sponsored by Alliancebernstein Holdings, The JPMorgan CEO said:
It’s a hurricane! Right now it’s kind of sunny, things are doing fine, everyone thinks the Fed can handle it. That hurricane is right out there down the road coming our way. We just don’t know if it’s a minor one or Superstorm Sandy … You better brace yourself.
After a mega bull run of 2021, the U.S. equity and the broader crypto market have gone through strong turbulence. All three of the top U.S. stock indices have corrected anywhere between 10-20 percent. On the other hand, the crypto market has corrected by roughly 35 percent eroding over $800 billion of investors’ wealth in the last five months.
Earlier in May 2022, Jamie Dimon called the turbulence just “storm clouds”. However, he now goes to revising his prediction. “I said there’s storm clouds, they’re big storm clouds, they’re — it’s a hurricane. JPMorgan is bracing ourselves and we’re going to be very conservative with our balance sheet.,” he added.
Interestingly, JPMorgan strategists recently revised the Bitcoin (BTC) price target to $38,000 as “fair value”. But Dimon continues to think that Bitcoin is worthless. Last year, he said: “I’m not a bitcoin supporter. I don’t care about bitcoin. I have no interest in it. On the other hand, clients are interested, and I don’t tell clients what to do”.
Read More: Bitcoin hits $44,000, but JPMorgan says the fair value is at $38,000
Choosing between inflation or recession
The U.S. inflation numbers have been soaring to a four-decade high and the Federal Reserve has been compelled to pull the levers. The U.S. central bank will soon reverse its bond-buying program and shrink its balance sheet. It has already started with strong quantitative tightening (QT) measures. So far in 2022, the U.S. Federal Reserve has announced two major interest rate hikes. This has led to fears of de-growth and possible incoming recession.
Jamie Dimon said:
We’ve never had QT like this, so you’re looking at something you could be writing history books on for 50 years.
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He said that the Fed has no option but to raise interest rates since it pumped too much liquidity into the system during the pandemic.
However, strong QT measures would lead to significant de-growth leading us to recession. But not doing so would mean letting inflation rise. It will be interesting to see as to how the Fed manages to strike a balance between the two.