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Macro

JPMorgan CEO Dimon Warns of Hard Landing, Stagflation Worst Outcome

Jamie Dimon warns of potential 'hard landing' and stagflation, with U.S. debt-to-GDP ratio projected to hit 130% by 2034.

5/23, 00:29 EDT
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Key Takeaway

  • JPMorgan CEO Jamie Dimon warns of a potential "hard landing" for the U.S. economy, with stagflation being the worst-case scenario.
  • Despite low unemployment and rising wages, consumer confidence remains low due to persistent inflation concerns.
  • Fed minutes indicate policymakers' growing concern about inflation, reducing the likelihood of imminent rate cuts.

Jamie Dimon Warns of Hard Landing

JPMorgan Chase’s chairman and CEO, Jamie Dimon, has raised concerns about the potential for a "hard landing" in the U.S. economy. Speaking at the JPMorgan Global China Summit in Shanghai, Dimon emphasized the historical precedent for economic downturns, stating, "Could we actually see one? Of course, how could anyone who reads history say there’s no chance?" He highlighted the worst-case scenario of stagflation, where inflation persists while growth slows and unemployment rises. Dimon noted, "The worst outcome for all of us is what you call stagflation, higher rates, recession. That means corporate profits will go down and we’ll get through all of that."

Despite these concerns, Dimon pointed out that the consumer sector remains relatively strong, with unemployment rates below 4% for nearly two years, and rising wages, home prices, and stock prices. However, he acknowledged that consumer confidence is low, primarily due to inflation. "The extra money from COVID has been coming down. It’s still there, you know, at the bottom 50% it’s kind of gone. So it’s I’m gonna call it normal, not bad," Dimon added.

Fed's Uncertainty on Inflation

Federal Reserve officials appear uncertain about the current inflation landscape in the U.S., according to Julian Howard, lead investment director of multi-asset solutions at GAM. Speaking on CNBC’s “Squawk Box Europe,” Howard remarked, "I think the message that’s coming through is that they have no idea what’s going on." This sentiment comes as policymakers have urged patience regarding interest rate cuts, citing that inflation has not decreased as expected and remains too high for the Fed to ease monetary policy.

Fed Governor Christopher Waller emphasized the need for more data before supporting rate cuts, stating, "In the absence of a significant weakening in the labor market, I need to see several more months of good inflation data before I would be comfortable supporting an easing in the stance of monetary policy." Boston Fed President Susan Collins echoed this sentiment, noting, "I think the data has been very mixed ... and it’s going to take longer than I had previously thought."

The U.S. consumer price index for April came in at 3.4% annually, a slight dip from March’s 3.5% but still above the Fed’s 2% target. Howard pointed out the challenge in predicting inflation, stating, "Inflation did start coming down but then it seems to have just got stuck at around 3.5% and everyone is trying, is struggling to find a narrative to why’s it got stuck at 3.5%."

Rising Debt-Cost Concerns

Goldman Sachs has updated its long-term U.S. fiscal outlook, projecting that a key metric of debt sustainability will reach historically extreme levels. Economists Manuel Abecasis and David Mericle noted, "The outlook for US fiscal sustainability has become more challenging over the last five years." They highlighted that higher expected future interest rates have worsened the trajectories of the debt-to-GDP ratio and real interest expense as a share of GDP.

Treasury Secretary Janet Yellen has previously stated that a rate of 1% for net inflation-adjusted interest payments as a proportion of GDP was acceptable. However, Goldman’s updated projections see this ratio climbing to 2.3% by 2034. The U.S. debt-to-GDP ratio is also expected to reach 130% by 2034, up from the current 98%.

The primary fiscal deficit, excluding interest costs on the debt, is now about 5% greater as a share of GDP than typical during times of full employment. Abecasis and Mericle warned, "The current fiscal trajectory could eventually push the debt-to-GDP ratio to a point where stabilizing it would require a fiscal surplus of a size that has rarely been sustained historically."

Street Views

  • Jamie Dimon, JPMorgan Chase (Cautiously Optimistic on the U.S. economy):

    "Could we actually see one [hard landing]? Of course, how could anyone who reads history say there’s no chance?"

  • Jamie Dimon, JPMorgan Chase (Bearish on stagflation scenario for the U.S. economy):

    "I look at the range of outcomes and again, the worst outcome for all of us is what you call stagflation, higher rates, recession. That means corporate profits will go down and we’ll get through all of that."

  • Jamie Dimon, JPMorgan Chase (Neutral on consumer condition amid potential recession):

    "The consumer is still in good shape even if the economy slips into recession... It seems to be mostly because of inflation... The extra money from COVID has been coming down. It’s still there, you know, at the bottom 50% it’s kind of gone. So it’s I’m gonna call it normal, not bad."