Jamie Dimon Says 8% Interest Rates Still Possible

In JPMorgan Chase’s latest annual report, chief executive officer Jamie Dimon’s letter to shareholders has much to say that is company specific, as one would expect.

However, he also offers various observations and warnings about the national economy, and in his view, what might be coming.

Planning for potential wide interest rate range

Many people have been focusing on when interest rates will fall. Dimon points out that markets are pricing the chance of a soft landing — “modest growth along with declining inflation and interest rates,” he wrote — between 70% and 80%.

“I believe the odds are a lot lower than that,” he said. Rates might fall — eventually. Or they might stay where they are, or they could even climb. The question isn’t what an interest rate is this month or next, but where things might be in the future and how to prepare for them.

Dimon said that he has JPMorgan preparing “for a very broad range of interest rates, from 2% to 8% or even more, with equally wide-ranging economic outcomes — from strong economic growth with moderate inflation (in this case, higher interest rates would result from higher demand for capital) to a recession with inflation; i.e., stagflation.” The important point being that smart business requires extensive planning and consideration of conditions that might not come out the way you’d like.

Robust economy from government deficit spending and deficits

The U.S. economy is resilient even after the “regional bank turmoil,” Dimon said, but it’s important to realize that “the economy is being fueled by large amounts of government deficit spending and past stimulus. There is also a growing need for increased spending as we continue transitioning to a greener economy, restructuring global supply chains, boosting military expenditure and battling rising healthcare costs.” He tagged the price as trillions of dollars a year. “This may lead to stickier inflation and higher rates than markets expect.”

Geopolitics offers potential risk

CRE investors, developers, and property owners often focus on immediate and short-term business and economic conditions. But Dimon said “we may be entering one of the most treacherous geopolitical eras since World War II.” He added that “the impacts of these geopolitical and economic forces are large and somewhat unprecedented; they may not be fully understood until they have completely played out over multiple years.” They are also unpredictable. “For example, the geopolitical situation may end up having virtually no effect on the world’s economy or it could potentially be its determinative factor.”