Jamie Dimon Warns Of Potential 6.25% Rate Hike From Fed Amid Sticky Inflation: Quantitative Tightening 'Will Rattle The Markets'

JPMorgan Chase & Co JPM CEO Jamie Dimon has commented on the latest Federal Reserve move and the impact of rate hikes and quantitative tightening on the economy.

More Rate Hikes Warranted: The Fed did the right thing to raise rates rapidly and now they should pause and see what happens, Dimon said in an interview with Yahoo Finance late Wednesday.

On Wednesday, the Federal Open Market Committee, the monetary-policy setting arm of the Fed, opted to maintain the fed funds rate unchanged at a 22-year high of 5.25%-5.50% for a second straight meeting. The post-meeting policy statement was little changed, with the central bank commenting about financial and credit conditions likely weighing on overall economic activity for households and businesses.

Fed Chair Jerome Powell's presser suggests future rate moves will be decided on a case-by-case basis, with a bias toward tightening.

Speaking with Yahoo Finance, Dimon said, "I think there is a chance that inflation is stickier than people think. He noted that the fiscal and monetary stimulus of the last several years is more than people think and the unemployment rate is very low.

The executive said there is a higher chance of rates going up 25, 50, or 75 basis points more. The 10-year rates, which are not set by the Fed, have gone up due to the influence of words, he said. The supply of bonds has gone up dramatically and quantitative easing is also increasing the supply, he added.

"I think, there may be pressure on the 10-year rate to go up… It isn't abnormal to have a 5.5%, 6%, or even a 7% 10-year rate," Dimon said. He also sees potential for a double whammy for borrowers, as credit spreads may also rise.

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Economic Impact Of Rate Hikes: The Fed hikes and the quantitative tightening have affected home sales but not home prices, as well as auto sales and credit card loans Dimon said. Over time, it will affect businesses at the refinance and floating rates, he said.

"Of course, it is depressing certain economic activity," Dimon said, adding it's hard to say by how much.

Quantitative tightening will at one point rattle the market as it did in March 2020 and in 2019, the executive said. The rattling will first show up in treasuries, he said.

On the 8% mortgage rates Powell signaled, Dimon said the current situation is very different than prior times. "We have still a lot of fiscal stimulus with very low unemployment and consumers actually are in rather good shape," he noted.

Dimon also noted that home prices and asset prices have gone up for the better part of the past 15 years, although they may have been down now. But the equity in the home is at all-time records, he said.

Risk Management: “Think about the world broadly and don't guess there is one thing that is going to happen,” Dimon said. “Almost no one has forecasted real inflection points.”

Looking at it as risk management, the most important issue is geopolitical tensions, namely the Ukraine war and Israeli conflict and the resultant death and the humanitarian crisis, he said. "It's affecting global trade and global alliances,” he added.

Dimon said he would put the geopolitical part in the worry category. It will have an effect on the economy and may determine whether the economy is going to go into a hard or soft landing, he said.

After over 20 years of low rates, now all of a sudden, it looks like there is a lot of long-term inflation, a $2 trillion deficit, which is the biggest peacetime deficit ever, Dimon said.

The corporate chief ruled out a Volcker recession when the unemployment rate hit 10% or 11%, as consumers are in very good shape.

"I just think there is a lot of deficit financing and that may cause long-term rates to go and stay higher and inflation for a little bit longer," he added.

The iShares TIPS Bond ETF TIP, an exchange-traded fund that tracks the investment results of an index composed of inflation-protected U.S. Treasury bonds, ended Wednesday’s session up 0.87% at $103.24, according to Benzinga Pro data.

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