JPMorgan Chase CEO Jamie Dimon warned Tuesday that the U.S. economy is showing worrying signs of 1970s-style stagflation, with slowing growth and persistently high inflation. His comments come as investors grow increasingly concerned over the economic outlook.
Dimon Sees Echoes of 1970s Crisis
In an earnings conference call, Dimon said the current environment is “starting to resemble more of the 1970s than the 2020s or 2010s.”[1] He specifically cited high inflation, quantitative tightening, rising interest rates, and Russia’s invasion of Ukraine as factors creating substantial uncertainty.
“These are very, very serious things which I think are likely to push the United States and the world — I mean, Europe is already in negative growth — and they’re likely to put the United States in some kind of recession six to nine months from now,” Dimon said.[2]
The 1970s were marked by runaway inflation reaching over 10%, combined with slow economic growth that led to extended recessions. If Dimon’s prediction comes true, it signals more economic pain ahead.
Bracing for Recession By Mid-2024
Dimon warned shareholders to brace themselves for an economic recession by mid-2024, dashing hopes for a “soft landing” where the Federal Reserve cools inflation without damaging growth. [3]
“These are serious things, so buckle up,” Dimon told analysts and investors.
He expects inflation to persist even as higher interest rates bring economic activity to a near standstill. This toxic mix of outcomes risks hurting job markets and corporate earnings.
| Economic Indicator | 2023 Q4 | 2024 Q2 (Forecast) |
|---|---|---|
| GDP Growth | 0.5% | -0.3% |
| Unemployment Rate | 3.6% | 4.1% (rising) |
| Inflation Rate | 6.4% | 7.2% |
Table 1: Key economic indicators showing rising recession risk in 2024 (Source: JPMorgan Chase)
JPMorgan itself is battening down the hatches by building up loss reserves in preparation.
Fed Rate Hikes Still Ineffective on Inflation
While supporting Federal Reserve rate hikes so far, Dimon argued that continued aggressive policy tightening could badly damage global growth. However, he still sees inflation as “quite persistent” despite five straight 75-basis-point hikes already delivered. [4]
“While the Fed is still fighting inflation, and rates may still have to go higher than markets expect, there comes a point when tighter monetary policy begins doing more harm than good,” he said.
JPMorgan’s economists believe the terminal Fed funds rate could rise as high as 5-5.5% by mid-2023. If Dimon is right though, current policy action may still fall short of taming inflationary forces.
Geopolitical Tensions Exacerbating Uncertainty
The JPMorgan chief also called out increased global instability from Russia’s war in Ukraine as a key factor challenging future growth. Sustained commodity supply volatility and Europe’s economic woes could have further knock-on effects.
Dimon highlighted the array of intertwined issues now facing global markets. Resolving them without causing a downturn looks improbable.
“There’s a lot of stuff on the plate to worry about,” he told analysts.[5] “I’m just keeping my eyes wide open and hopefully, none of that happens.”
Bracing for Impact
With storm clouds gathering, investors should plan defensive investment strategies in preparation. JPMorgan is battening down its own hatches by shoring up balance sheet risks.
Dimon made clear that global instability could cause matters to deteriorate faster. Nonetheless, he thinks a downturn starting in six to nine months is likely.
All eyes will now turn to January consumer price data, due for release next week on January 17. Markets expect to see confirmation that inflationary pressures continue unabated. If so, further Fed hikes seem guaranteed, setting the stage for Dimon’s stagflation scenario to play out.
Buckle up indeed.
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