JPMorgan Chase CEO Jamie Dimon has warned that the Federal Reserve might have to take a sudden change in policy next year if inflation persists, a move that could rattle investors.
Dimon, who has helmed the largest U.S. bank since 2005, has expressed concern about the current rate of inflation and the Fed’s attitude toward it. He has pushed back on the central bank’s notion that the country’s too-high inflation will only be transitory.
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The CEO and chairman told CNBC-TV18 that if rising prices become so high that it causes the Fed to “jam on the brakes, pull out liquidity, then you’re going to see a huge reaction.”
“And I’m not predicting that, but it’s possible they have to do that sometime next year,” Dimon said. “The Fed can’t always be proactive — I mean, sometimes they’re going to have to be reactive.”
His remarks come as the central bank’s top officials finish up their much-anticipated two-day meeting. The Fed is expected to keep interest rates at near-zero levels but hint at tapering its purchases of $120 billion in monthly Treasury bonds and mortgage-backed securities.
Fed watchers predict that the shift in monetary policy could be announced after the Federal Open Market Committee’s November meeting, and the tapering could begin by the end of the year. Fed Chairman Jerome Powell is set to discuss this week’s meeting during a news conference on Wednesday after the central bank releases updated economic projections.
The Fed has said it has no intention of raising interest rates until inflation is running at 2% and the U.S. reaches full employment. While inflation has now thoroughly breached that target, the unemployment rate is at 5.2%, well above the ultra-low 3.5% level it hit prior to the COVID-19 pandemic and subsequent recession.
The August jobs report fell well short of economists’ expectations. The economy added just 235,000 new jobs last month, below the 750,000 that were expected.
Dimon has been warning about persistent inflation for months. He said in June that JPMorgan Chase is “effectively stockpiling” cash.
“I doubt [come] December, people will say it’s all transitory when it’s now been going on for quite a while,” Dimon said this week, noting that concerns about inflation would lessen if growth remains high. “Inflation, to me, it looks like there’s a part that’s transitory, and there’s part that’s not — that’s not a disaster.”
The Fed’s last projection for inflation was that it would be at 3.4% in 2021 before settling down to 2.1% in 2022, 2.2% in 2023, and about 2% in the longer run. A revised-up forecast for prices on Wednesday could send jitters through the market.
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The Fed’s gross domestic product growth projection, which it made in June, is a red-hot 7% for this year. Those numbers are also being closely watched in light of the delta variant, which began taking hold in July and sent new cases of COVID-19 soaring and has resulted in some disturbances to certain industries such as the airline and travel industry.
Goldman Sachs recently revised down its gross domestic product forecast for 2021 from 6.2% to 5.7%, and Wells Fargo also slashed some of its GDP predictions.
