Jamie Dimon, CEO of JPMorgan, has warned that the global economy may not be prepared for a worst-case scenario in which US interest rates rise to as high as 7% accompanied by stagflation. The US Federal Reserve has already increased benchmark borrowing costs by 525 basis points since March 2022 in an effort to control inflation, which partially contributed to the cryptocurrency market crash last year. Dimon suggests that if the Fed continues to raise rates to combat inflation, it could have more damaging effects on the global economy. He expresses concern that the world may not be ready for interest rates at 7%.
If interest rates were to reach 7% alongside stagflation, it would increase the risk of a recession in the US economy. This would have negative implications for risk assets such as technology stocks and cryptocurrencies. Additionally, the ongoing tightening measures could lead to US Treasury yields reaching multi-decade highs, making bonds more attractive and potentially draining capital from riskier investments. Dimon’s comments go against the popular belief that the Fed’s tightening cycle has already peaked, as the central bank has stated its intention to keep borrowing costs higher for a longer duration.
In summary, Jamie Dimon has expressed concern about the global economy’s readiness for the potential scenario of US interest rates rising to 7% alongside stagflation. He believes that the ongoing tightening measures by the US Federal Reserve could have more damaging effects on the global economy and may catch some investors off-guard. The potential risks include a recession in the US economy and a drain of capital from risky investments towards more attractive bonds. Dimon’s comments contradict the belief that the Fed’s tightening cycle has already reached its peak.