"Hurricane Approaching US Economy: Dimon's Warning... Concerns Over Quantitative Tightening and Ukraine War"

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joeslgina] "I said there were storm clouds, but I will change it to a hurricane."

Jamie Dimon, CEO of JP Morgan Chase, known as the "Emperor of Wall Street," warned that a "hurricane" is approaching the U.S. economy. Due to the Federal Reserve's quantitative tightening (QT) and the war between Russia and Ukraine, the economic uncertainty, which was previously seen as storm clouds, has intensified.

According to U.S. economic media CNBC and others, Dimon spoke at a financial conference held in New York on the 1st (local time), saying, "It is better to prepare yourself." He said, "I said there were storm clouds, but I will change it to a hurricane," adding, "Currently, the condition looks good, but no one knows whether the hurricane will be small or a superstorm like Sandy." He also explained that JP Morgan Chase, the largest U.S. bank, is managing its balance sheet very conservatively in preparation for this.

Dimon is particularly concerned about two factors: the Fed's QT and the Ukraine war. To curb inflation, which is at its highest level in 40 years, the Fed has started raising interest rates and will begin QT, a process of reducing its balance sheet, starting this month. It plans to reduce Treasury bonds and mortgage-backed securities (MBS) by $47.5 billion per month and then increase the reduction to $95 billion per month for the following three months. Dimon pointed out that most quantitative easing programs have had adverse effects and expressed concern, saying, "We have never done this kind of QT before."

Regarding the Fed's tightening moves, he also said, "There is too much liquidity in the system, so the central bank has no choice," and evaluated, "They must remove some liquidity to stop speculation and lower housing prices." Despite some concerns about economic slowdown, the Fed has repeatedly signaled it will continue tightening. A 0.5 percentage point increase is virtually expected at the meetings this month and next month.

Along with this, Dimon cited the negative impact of the Ukraine war on prices of raw materials such as food and crude oil as another concern. He added that oil prices could potentially rise to $150 or even $175 per barrel. He noted, "The war is worsening and drifting into unintended consequences." He also mentioned the possibility of oil prices rising to $150 or $175 per barrel.

Dimon's "hurricane" remark on this day is a more severe diagnosis compared to his earlier concern at the "storm cloud" level about economic variables. He said, "There has been a major change in global capital flows," adding, "We do not yet know what impact it will have, but at least we are preparing for tremendous volatility."

Recent acceleration of the Fed's tightening has already caused economic growth to slow in some parts of the U.S. The Fed's Beige Book report released on the same day diagnosed that the economy grew "slightly or modestly" in most U.S. regions. It also pointed out that "four districts have seen slower growth." The market sees that the impact of high inflation and the Fed's tightening is becoming visible not only to consumers but also to corporate earnings, as seen in recent Walmart and Target shocks.

However, despite concerns about economic slowdown, the Fed's tightening is expected to continue. Earlier, Fed Chair Jerome Powell confirmed his intention to continue tightening until inflation clearly slows down, even if there is some pain.

Mary Daly, President of the Federal Reserve Bank of San Francisco, also said in an interview with CNBC on the same day, "The benchmark interest rate must reach the neutral rate by the end of the year," supporting a 0.5 percentage point rate hike at least in June and July. James Bullard, President of the Federal Reserve Bank of St. Louis, known as a hawk (favoring monetary tightening), also reinforced tightening in his speech at the Memphis Economic Club, saying, "We are at risk of losing control over inflation expectations."

This content was produced with the assistance of AI translation services.