JPMorgan Chase CEO Jamie Dimon said on Tuesday that stubbornly high inflation could cause a U.S. economic recession next year as steep prices cause consumer spending to dry up.
The businesses are still in good shape and consumer spending remains strong, with households hoarding $1.5 trillion in excess savings from the pandemic relief programs, according to Dimon. He warned that may not last long.
Dimon said in an interview on CNBC that inflation is eroding everything I just said, and that $1.5 trillion will run out sometime mid-year next year. If you look that forward, those things could cause a mild to severe recession that people are worried about, and derail the economy. The head of the largest bank in the U.S. first sounded the alarm in early May, citing concerns over inflationary pressures, a hawkish Federal Reserve and the war in Ukraine. He ratcheted up those warnings in June, when he said the US was headed for an economic hurricane as a result of the Fed's quantitative tightening and the first European war in decades.
The Fed's most aggressive rate-hike campaign has resulted in a more monetary tightening path in the last decade as consumers' prices are still running near a 40 year high and the outlook has clouded further as a result of the economic outlook.
Dimon said policymakers could lift interest rates as high as 5% next year, but that may not be enough. He said that he doesn't think we've seen that kind of turmoil in the global world for a long time.
Dimon indicated that if the U.S. heads for a recession next year, it's still unclear whether it will be a mild or severe downturn.
What I said about a hurricane, I said that those storm clouds could be mitigated, he said. It could be a hurricane. As a risk manager, I prepare for both but I'm not sure what one's going to happen. Dimon is one of the many influential Wall Street executives and business titans whose opinions on the economy have soured in recent months.
Goldman Sachs CEO David Solomon, Tesla CEO and Twitter chief Elon Musk, Alphabet CEO Sundar Pichai and former Amazon CEO Jeff Bezos have expressed concerns about the possibility of a recession within the next year.
Solomon said Tuesday that we have some bumpy times ahead, and you have to assume that we have some bumpy times ahead," he said. You have to be cautious with your financial resources, sizing and footprint of the organization.