JPMorgan CEO says that Americans should brace for something worse than recession

“Well, no, we’re out of the woods. I don’t think so,” says JPMorgan CEO Jamie Dimon
By Sam Bourgi
•
19 September 2024
Share:
jamie dimon, jpmorgan

JPMorgan CEO Jamie Dimon thinks the recession isn't what should keep Americans up at night. Speaking at the Council of Institutional Investors in New York, Dimon said, “The worst outcome is stagflation.”

“And by the way, I wouldn’t take it off the table,” said Dimon.

Stagflation is a combination of high inflation, slow growth, and high unemployment. It's more dangerous than recession because the Fed's conventional tools may not remedy it.

The reason is that interest rates—the Fed's by far strongest monetary lever—have the opposite effect on economic growth and inflation.

This isn’t the first time Dimon has warned about stagflation. In June, one of Wall Street's most influential executives said the threat of stagflation is “much higher” than most people think.

At the time, Dimon blamed the “extraordinary” level of fiscal and monetary stimulus that had occurred since Covid. “[H]ow can you tell me it won’t lead to stagflation?” he said.

The scale of the problem has only gotten worse since, with interest on the federal debt exceeding $1.2 trillion for the full fiscal year ending on Sept. 30.

For perspective, interest payments on the federal debt are one-third higher than the entire annual military budget. It’s hard to look at this situation and say, “‘Well, no, we’re out of the woods.’ I don’t think so,” said Dimon.

For now, it doesn’t seem like policymakers are taking the banking executive’s warning seriously. Economists warn this could be a grave mistake.

Evidence of the ‘stag’ and the ‘flation’

In May, Fed Chair Jerome Powell was asked about the possibility of stagflation taking root in the economy, to which he famously quipped that he doesn’t see the “stag” or the “flation.”

“I don’t really understand where talk of a stagflation scenario is coming from,” said Powell, who was responding to an alarming rise in inflation and declining growth in the first quarter.

Fast forward to September, and inflation is finally showing signs of moderating. As Creditnews reported, the Consumer Price Index (CPI) reached a more than three-year low of 2.5% in August.

Other inflation measures, such as the core Personal Consumption Expenditures index, are also back below 3%.

However, moderating inflation doesn’t mean the threat of stagflation has been neutralized.

According to economic analyst Amy Nixon, the “stag” in stagflation includes “layoffs [...], weak housing starts, weak purchasing apps, [and] low transaction volume” prevalent in the U.S. economy. A rapid rise in unemployment also points to the “stag” in stagflation.

The “flation” primarily comes from elevated shelter costs, which are still growing at more than double the pace of headline inflation. For example, in August, the shelter component of CPI grew 5.2% annually.

As macro strategist Charlie Bilello recently explained, the shelter component of CPI has been above 5% for 29 consecutive months—the “longest period of elevated housing inflation since the early 1980s.”

More from Creditnews: