The prospect of a recession in the US is not “off the table” but the Federal Reserve should wait before cutting interest rates, according to the head of JP Morgan Chase.
Jamie Dimon, the investment banking company’s CEO, made the comments while appearing at the Australian Financial Review Business Summit in Sydney through video link.R
“The world is pricing in a soft landing, at probably 70 per cent to 80 per cent,” the chief executive explained.
“I think the chance of a soft landing in the next year or two is half that. The worst case would be stagflation.”
According to Dimon, the usual indicators surrounding the economy have been distorted following the pandemic and he takes then with a “grain of salt”.
As well as this, the JP Morgan boss said that the Fed should wait for further clarity before deciding to slash interest rates.
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The CEO of JP Morgan is issuing a recession warning
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The central bank has raised the Federal Funds Rate to 5.25 per cent and 5.50 per cent which has hiked repayments for borrowers and mortgage holders.
Interest rates have been raised in the US’ ongoing fight with inflation with the Consumer Price Index (CPI) sitting at 3.2 per cent as of the 12 months to February 2024.
While this remains higher than the Fed’s desired two per cent target, it is a far cry from the heights seen during the pandemic.
According to JP Morgan Chase’s CEO, the central bank must be cautious in implemented any cuts to interest rates.
Mr Dimon added: ““They can always cut quickly and dramatically. Their credibility is a bit at stake here.
“Unemployment in the United States is very low at the moment, wages continue to go up.”
Despite acknowledging that the US economy is “kind of booming”, the head of JP Morgan believes a recession in on the horizon.
A recession is defined as happening when a country experiences two consecutive quarters of negative economic growth.
The US economy has so far avoided this fate but other G7 nations, including the UK, have fallen into recession in recent months.
Comments made by the banker are less than optimistic than previous statements he has made about the state of markets.
Two years ago, Mr Dimon issued a warning that a “hurricane” was due to hit the US economy as the country struggled to deal with tightening interest rates.
Last week, Federal Reserve Chair Jerome Powell implied the financial institution is edging to brining rates down.
The Bureau of Labor Statistics recently reported that the US jobless rate reached a two-year high in February.
Job hiring continued to be healthy over the period which suggests a resilient labor market following the pandemic.
In February, nonfarm payrolls advanced 275,000 after a combined 167,000 downward revision to the two months before.
Unemployment jumped 3.9 per cent and wage gains eased last month. Analysts have cited these developments in the job market are further incentive for the Fed to cuts rates sooner rather than later.
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Experts are warning the US economy could still face an economic downturn
GETTYFollowing last month’s inflation figures, Neil Shah, the executive director at Edison Group, highlighted that the officials in the central bank are anxiously looking at inflation.
He said: “With interest rates already raised to about 5.3 per cent, policymakers are assessing the timing and extent of potential rate cuts as inflation recedes.
“Slower inflation, while welcome, prompts questions about its sustainability and its impact on consumer confidence, crucial for both the administration and the Fed.
“As attention shifts to future inflation data and the Fed's response, the trajectory of inflation remains a key determinant of economic outlook and policy decisions."