Persistent inflation and a full-blown recession are still on the table, two Wall Street titans have warned.
Jamie Dimon told CNBC on Thursday that persistent inflation is more likely than many people think. The JPMorgan CEO pointed to the tidal wave of fiscal and monetary stimulus since the pandemic, suggesting it could further fuel liquidity and push up asset prices.
Dimon said interest rates, which the Federal Reserve has raised from virtually zero to more than 5% since early 2022, could rise further — and that the world was “not really” prepared for that.
Asked if a “hard landing” or recession was still possible, he replied: “Of course. How can anyone who reads history say there is no chance?
Inflation has fallen from a 40-year high of more than 9% in mid-2022 to less than 4% in recent months, but remains well above the Fed’s 2% target. The U.S. economy grew 1.6% annualized in the first quarter, but that was down from 3.4% in the previous three months.
Dimon said the “worst outcome” would be stagflation – a painful combination of high inflation, higher interest rates and a recession that would hit consumers and reduce corporate profits.
“The world will survive this, but I just think the chances are a little higher than what others think,” the JPMorgan boss said, calling his outlook cautious.
No cuts and a real slowdown
David Solomon struck a similar tone at an event at Boston College on Wednesday, Bloomberg reported.
The CEO of Goldman Sachs predicted that there would be no interest rate cuts this year. Pointing to signs of weakening demand in recent earnings from McDonald’s and AutoZone, he warned that consumers were being squeezed by rising prices.
“Everything is more expensive,” Salomon said. “You’re starting to see the consumer, the average American, feeling that.”
The rising cost of living increases the risks of a “real and palpable slowdown” compared to six months ago, he added.
Dimon and Solomon have been warning against complacency for some time.
The JPMorgan boss said in March that he saw only a 35% to 40% chance of a soft landing. He repeatedly cited foreign wars, quantitative tightening and the explosion of public debt as reasons to be cautious.
Solomon also said in March that he was less certain of a soft landing than the market consensus. He stressed that conflicts abroad could fuel inflation and dampen global growth, and business leaders told him that low-income consumers were cutting back on spending and that some parts of the economy was weakening.
businessinsider
