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According to Jamie Dimon, the US economy is at risk of recession following the Fed’s recent hawkish stance along with the war in Eastern Europe.
JPMorgan CEO Jamie Dimon believes that “powerful forces” threaten the US economy into recession later this year. According to Dimon, this recession may inadvertently be the Federal Reserve’s undoing as it battles rising inflation. The CEO of the leading bank also suggested that the Russia-Ukraine situation could be a catalyst for America’s recession down the stretch.
Speaking on Wednesday, Dimon stated that economic growth may go on throughout the second and third quarters of the year. According to Dimon, this growth would be primarily spurred on by healthy consumerism and well-heeled businesses paying off debts on time.
“After that, it’s hard to predict. You’ve got two other very large countervailing factors [inflation and quantitative tightening] which you guys are all completely aware of….You’ve never seen that before. I’m simply pointing out that those are storm clouds on the horizon that may disappear, they may not,” he concluded.
Speaking on these factors, including the reversal of Fed bond-buying policies and the war in Eastern Europe, Dimon offered:
“Those are very powerful forces, and those things are going to collide at one point. No one knows what’s going to turn out. Is [a recession] possible? Absolutely.”
Jamie Dimon, JPMorgan Current Stance on Economy, a Far Cry from a Year Ago
Dimon’s gloomy outlook indicates that the economic landscape is fickle. Only a year ago, the JPMorgan CEO stated that the US was thriving due to a “Goldilocks moment”. This followed the inertia of the coronavirus period and was characterized by high growth and manageable inflation. Furthermore, at the time, Dimon predicted that such an economic boom would last up until 2023.
A year later, that outlook now paints a very different picture.
JPMorgan Chase’s pandemic boom ended with a 42% drop in profits from a year earlier. This was due to increased costs for bad loans and the Eastern European-triggered market upheaval. Specifically, the banking giant resorted to setting aside over $900 million in new funds for building loan reserves. This show of preparation for economic turmoil starkly contrasts its 2021 gestures when JPMorgan freed up $5.2 billion in reserves. That $5.2 billion had been originally earmarked for potential loan losses during the early months of the pandemic.
JPMorgan’s chief financial officer Jeremy Barnum says that the $900 million insurance policy is to cushion the potential fallout from the increasingly likely “Fed-induced” recession. The US central bank has already hiked rates that threaten to contract the economy in the past. Furthermore, this hike represents the first in three years and the first of six more to come this year alone.
“I cannot foresee any scenario at all where you’re not going to have a lot of volatility in markets. That could be good or bad for trading, but there’s almost no chance it won’t happen,” explained Dimon.