Jeenah Moon/Reuters
- The US economy is in good shape but there are "storm clouds" on the horizon, Jamie Dimon says.
- The JPMorgan chief worries about the fallout from pandemic stimulus as well as geopolitical risks.
- Dimon predicted choppy financial markets and warned stagflation is a possibility.
The US economy is enjoying sunny weather, but a storm may be brewing on the horizon, JPMorgan CEO Jamie Dimon has warned.
The country is still riding high on the trillions of dollars of government stimulus during the pandemic, Dimon told Bloomberg on the sidelines of the JPMorgan Tech Starts Leadership Forum on Monday. American consumers are in good shape in terms of savings, debt, and overall wealth, while corporate credit remains solid, he said.
However, Dimon singled out a couple of potential threats to the current situation.
"There are two things which are extraordinary today," he said. "Think of them as storm clouds. We don't know if they're going to hit, when they're going to hit, what they're going to do."
The first one is the historic amount of fiscal spending in recent years, and the record amount of federal debt, combined with the Federal Reserve's plan to shrink its balance sheet, Dimon said.
But the "biggest storm cloud" is geopolitical tensions, the billionaire banker said. He cautioned the Russia-Ukraine conflict affects everything from energy prices to food shipments, migration, and international trade and alliances.
Dimon warned those forces could fuel inflation, especially as trends such as rising oil and commodity prices, the transition to clean energy, and the restructuring of global trade all threaten to push up prices.
"I don't think inflation will keep on coming down," he said. "It may not, and therefore rates may go higher."
"At a minimum I expect volatile markets," he added, before underscoring an even greater risk to the US economy.
"The worst case is stagflation," he said, referring to a double-whammy of high interest rates due to stubborn inflation, and the economy stagnating or even shrinking in size. "If that happens, you're going to see a lot of people struggling."
Dimon advised people to be prepared for interest rates to hit 7%, and he didn't rule out a painful downturn. While the Fed might achieve a soft landing where it crushes inflation without tanking the economy, a mild or harder recession remains a possibility, he said.
The JPMorgan boss isn't the only Wall Street boss to be worried about the economic outlook. Citi CEO Jane Fraser told CNBC on Friday that she was seeing "cracks" appear as consumer demand softens, especially among poorer Americans who are struggling to navigate higher prices and steeper borrowing costs.