The CEO of America's largest bank warns of the dangers of relying on just one economic scenario, especially when central banks keep getting their forecasts wrong.
“Prepare for all scenarios, all possibilities, don’t just call for a certain action,” Dimon said on October 24 during a panel discussion at the Future Investment Initiative conference in Saudi Arabia. He said many issues could arise that would make things more difficult.
“I would point out that the central bank forecasts 18 months ago were 100% wrong. I would be very cautious about what might happen next year,” he said.
The comments echo the Federal Reserve’s forecasts for early 2022 and 2021, when officials said the spike in inflation was “just a transition.” The Fed kept its emergency policies in place and hoped inflation would cool.
However, inflation has been more persistent and widespread than expected, partly due to supply chain disruptions caused by Covid-19 and then the war in Ukraine. A series of central banks, from the US, Europe to Australia, have had to continuously raise interest rates since last year to control inflation.
JP Morgan CEO Jamie Dimon at a conference in California (USA). Photo: Reuters
In addition to misjudging the price action, Fed officials in March 2022 also predicted that interest rates would only rise to 2.8% by the end of this year. Currently, that figure is 5.25% - a 22-year high. Core inflation is also expected to be only 2.8% - 1.1% lower than the current level.
Dimon criticized that "central banks and governments feel they can solve all this" and that makes him "always have to be cautious".
While much of Wall Street is focused on whether the Fed will raise interest rates by 25 basis points (0.25%) this year, Dimon isn't paying attention. "I don't think 25 basis points or more will make a difference," he said.
Earlier this month, in an interview on Bloomberg TV, Dimon said the Federal Reserve was not done raising interest rates to curb inflation, and that rates could reach 7%.
“This is the most dangerous moment the world has seen in decades,” he said. A 7% interest rate could stifle consumption and investment, slowing economic growth.
Still, he can't predict what impact this will have on the economy. "We could still have a soft landing, a mild recession, or a deep recession," he said.
Ha Thu (according to CNBC)
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