JPMorgan's Dimon Warns of Economic Hurricane as Fed Beige Book Alerts Big Downshift

JPMorgan Chase CEO Jamie Dimon has warned that the US economy is heading into 'hurricane' triggered mainly by the Ukraine war but aggravated by the inflation pressures and the Federal Reserve's rate hikes.

"Right now it's kind of sunny, things are doing fine. Everyone thinks the Fed can handle this ... That hurricane is right out there down the road coming our way," Dimon said, according to CNN.

His comments came after the central bank's Beige Book report said US economic growth has 'downshifted' due to the rising interest rates and inflation.

"Four districts explicitly noted that the pace of growth had slowed since the prior period," the Beige book report said. The report noted that several districts were becoming extremely cautious as outlooks is turning pessimistic.

US economy expands 1.4% in fourth quarter; corporate profits fall
A customer counts his U.S. dollar money in a bank in Cairo, Egypt March 10, 2016

According to St. Louis Fed President James Bullard, it is quite natural to see slower economic growth. "We would expect growth to be slowing to a pace that is more consistent with the longer-term potential growth rate of the US economy, which many economists put at 1.75% to 2%," according to Bloomberg News.

Meanwhile, according to a Labor Department report, US job openings dropped in April from a record in March. The government's jobs report is due on Friday, and will throw light into the state of recovery in the broader economy.

In his comments Dimon highlighted the fact that the economy is "distorted" by inflation.

He also noted that the Federal Reserve has embarked on the path of tightening the monetary policy even as it is raising interest rates. This quantitative tightening, coupled with rate hikes, is 'something that the market is not prepared for', Dimon said.

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"We just don't know if it's a minor one or Superstorm Sandy. You better brace yourself," he saud, adding that he is prepared for "non-benign environment" and "bad outcomes."

Dimon said also ventured into predicting a high-price scenario in the crude market, going as far as to say that crude prices can spike as high as $150 to $175 a barrel. "Wars go bad. They go south. They have unintended consequences," he said.

In April, Goldman Sachs predicted that the odds of the US economy contracting was at about 35 percent over the next two years as the Fed is rolling out multiple interest rate hikes this year. "Our analysis of historical G10 episodes suggests that although strong economic momentum limits the risk in the near-term, the policy tightening we expect raises the odds of recession. As a result, we now see the odds of a recession as roughly 15% in the next 12 months and 35% within the next 24 months," Goldman Sachs chief economist Jan Hatzius wrote in a note.

Deutsche Bank's Matthew Luzzetti had also predicted that US recession is around the corner.

Jamie Dimon
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Again in May, former Goldman Sachs CEO Lloyd Blankfein warned that the US economy is running a high risk of slipping into recession. Blankfein's grim comment came even as the US Federal Reserve continues to raise interest rates to control rising inflation.

The Fed raised interest rates in March as the economy was emerging from the loose monetary policy triggered by the coronavirus pandemic. The quarter-percentage-point rate increase in March will be followed up with more hikes as the Fed is doing a tightrope walk trying to rein in inflation without causing widespread pain in the economy.

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