Jamie Dimon, the CEO of JP Morgan Chase, believes there’s a possibility the Fed could bring interest rates to 8%.
On Tuesday, JP Morgan Chase CEO Jamie Dimon said that interest rates in the United States may go up as high as 8%. Jamie Dimon leads the world’s largest bank, one of the “big four” in the United States, with over $158 billion in annual revenues.
Dimon spoke broadly about a variety of subjects in his annual letter to shareholders, from artificial intelligence to the overall health of the American financial market. The question of interest rates, however, is the most relevant in the current economic climate.
Interest rates in the US remained at 5.5%, a 20-year high, since June 2023. They increased due to an 11-month hike cycle, one of the fastest in US history.
Hikes were necessary to battle inflation, which almost reached 10% at its peak in the US in June 2022. Inflation was caused by overly generous stimulus COVID-19 packages and an energy shortage following the Russian invasion of Ukraine.
Inflation was mostly tamed in the United States, though slower than expected. March’s reading will be released on Wednesday, and investors expect a 3.4% annual inflation increase, up from February’s 3.2%.
The US Federal Reserve uses 2% as its ideal target for inflation.
Dimon warning about rates
Markets widely expect the Fed to start cutting rates sometime this year. Fed Chairman Jerome Powell pledged a 0.75% cut in 2024, likely due to three consecutive decreases.
However, Jamie Dimon has a different opinion. In his letter, Dimon said JP Morgan Chase expects a broad range of interest rates in 2024, from 2% to 8%.
He cited several factors that could cause rates to further increase, including “ongoing fiscal spending, remilitarization of the world, restructuring of global trade, capital needs of the new green economy, and possibly higher energy costs.”
Almost as to prove Dimon’s point, oil prices have been rising steadily in the past few weeks. Yesterday, Brent broke the $90 per barrel level, heading to the psychological $100 level. Oil prices are one of the main drivers of global inflation.
Nevertheless, the market still expects the Fed to pivot in June. The European Central Bank, which also battled record-high inflation in the past two years, will also likely start cutting rates in the summer. Inflation in the Eurozone is expected to reach 2.4% year-on-year in March.
A decision to hold rates further could also impact the 2024 US elections. Incumbent President Joe Biden will have a harder electoral campaign with interest rates still high. But an even harder one with inflation creeping up again.
