Jamie Dimon Is As Pessimistic As Ever

No matter how many economic cheerleaders were predicting a so-called soft landing — slowing inflation, reasonable GDB growth, no spike in unemployment, and zero recession — JPMorgan chief executive Jamie Dimon has been dubious. And he continues to be.

In an interview with Bloomberg, Dimon reiterated his concern over such potential inflationary pressures as spending on the green economy, ongoing rising government deficit spending, military spending, and trade disputes.

“There are a lot of inflationary forces in front of us,” he said. “The underlying inflation may not go away the way people expect it to.”

“If you have higher rates and — God forbid — stagflation, you will see stress in real estate and leveraged companies, and private credit,” Dimon added.

He hasn’t been arguing for inevitable trouble. Rather, he’s been pushing for caution and scenario planning. In March, Dimon urged the Federal Reserve to wait on rate cuts until a recession was completely “off the table.”

“The world is pricing in a soft landing, at probably 70-80%,” he said addressing the Australian Financial Review Business Summit in Sydney through a video link. “I think the chance of a soft landing in the next year or two is half that. The worst case would be stagflation.” Dimon put the odds of a recession then at 65%.

His concern about stagflation — high unemployment, low growth, and strong inflation with rising prices reminiscent of the 1970s — is not isolated. Others have suggested as much.

Dimon had been warning about a stagflation potential for some months and, to some degree, even for years. Back in 2018, he said that Treasury yields on the 10-year should have been 4% and could reach 5%. That eventually happened, but about five years after the prediction.

In his annual letter to JPMorgan shareholders, Dimon warned about the range of conditions, including interest rates from 2% to 8%, “with equally wide-ranging economic outcomes — from strong economic growth with moderate inflation (in this case, higher interest rates would result from higher demand for capital) to a recession with inflation; i.e., stagflation,” the bank had to prepare for.

There has been at least one spot of good economic news of late. The Consumer Price Index came cooler than projections, so perhaps Dimon is too negative. Except, a more nuanced examination suggests that his caution has parallels in the Fed.

“The softer than expected increase in the consumer price index in April pulled forward market expectations of a rate cut from November to September; but it did not move the needle for the Fed, based on the hawkish comments from several officials after the CPI report was released,” wrote Oxford Economics. “While encouraging, the Fed needs to see more than one month of slower inflation data before it is convinced inflation is moving sustainably towards its 2 percent target.”

And current inflation tracking also doesn’t address the upcoming concerns that keep catching Dimon’s eye. It could be a case of not knowing until things are too late.