JPMorgan Chase CEO and Chairman Jamie Dimon gestures as he speaks during the US Senate Banking, Housing and Urban Affairs Committee's oversight hearing on Wall Street firms, on Capitol Hill in Washington, US, December 6, 2023.
Evelyn Hochstein | Reuters
JPMorgan Chase CEO Jamie Dimon warned on Friday that multiple challenges, primarily inflation and war, threaten a positive economic backdrop.
“Many economic indicators remain favorable,” the head of the largest US bank by assets said while announcing first-quarter earnings results. “However, looking to the future, we remain alert to a number of significant uncertain forces.”
Dimon said the “troubling” global landscape including “terrible wars and violence” is one factor driving uncertainty in JPMorgan's business and the broader economy.
In addition, he pointed to “ongoing inflationary pressures, which are likely to continue.”
Finally, on a somewhat related note, he pointed to the Federal Reserve's efforts to divest the assets it holds on its $7.5 trillion balance sheet.
“We have never seen the full impact of quantitative tightening on this scale,” Dimon said.
The latest comment refers to the nickname given to the process the Fed uses to reduce the level of Treasuries and mortgage-backed securities it holds.
The central bank is allowing up to $95 billion in bond proceeds maturing to be rolled out each month rather than reinvested, leading to a $1.5 trillion contraction in holdings since June 2022. The program is part of the Fed's efforts to tighten financial conditions in hopes of – Reducing inflationary pressures.
Although the Fed is expected to slow the pace of QT in the next few months, the balance sheet will continue to shrink.
Damon said the three issues combined represent big unknowns for the future.
“We don’t know how these factors will evolve, but we must prepare the company for a wide range of potential environments to ensure we can continually be there for customers,” he said.
Dimon's comments come amid renewed concerns about inflation. Although the pace of price increases has come off the peak in June 2022, data so far in 2024 has shown inflation to be consistently above expectations and well above the Fed's annual target of 2%.
As a result, markets were forced to significantly change their expectations for interest rate cuts. While at the beginning of the year markets were looking at up to seven cuts, or 1.75 percentage points, expectations now are for just one or two cuts totaling half a percentage point at most.
High rates are generally positive for banks as long as they do not lead to a recession. JP Morgan On Friday, it reported an 8% increase in revenue in the first quarter, attributed to strong interest income and higher loan balances. However, the bank warned that net interest income for the year may be slightly lower than Wall Street expects, and shares were down nearly 2% in premarket trading.
