Jamie Dimon Warns of Possible Recession in the US
According to JPMorgan Chase CEO Jamie Dimon, there is still a high risk of a recession in the US. Dimon believes it is a mistake to assume that growth will continue indefinitely. Speaking at Barclays’ 21st Annual Global Financial Services Conference, Dimon stated that a true normal credit cycle implies a recession, which is predictable. He emphasized that something always goes worse than normal within a normal credit cycle, and certain sectors like real estate are likely to underperform this time. Although he did not specify when he expects a recession, it is evident from his remarks that he anticipates one before the current credit cycle ends.
“And I’m not saying it’s going to happen. We don’t know, I don’t spend a lot of time guessing about outcomes of soft landing, medium recession, hard recession, because nobody knows.”
Despite the uncertainty, Dimon advised people to prepare for such an event.
Possible Causes of a Recession
Dimon argued that many people are making the mistake of focusing solely on real-time numbers without considering the future implications. He mentioned a quantitative squeeze in the future due to excessive global spending. The misconception lies in believing that the economy will experience strong growth for an extended period. However, analyzing recent annual US GDP growth rates reveals inconsistent and relatively weak growth from 2015 to 2019. While there was a significant drop in 2020 due to the pandemic, the strong growth observed in 2021 was merely a rebound from the previous year’s decline. In the first two quarters of 2023, there was only 2% growth despite inflation exceeding 4%.
Expansive Monetary Policies and Their Impact
Dimon indirectly criticized the Federal Reserve’s expansive monetary policies. The Fed’s balance sheet skyrocketed from $4 trillion to nearly $9 trillion between 2020 and 2021, resulting in negative spillovers on prices. The US experienced high inflation and expensive borrowing costs, reaching levels not seen in forty years during the 2022/2023 period. However, apart from the initial pandemic-induced recession and a brief contraction in the first half of 2022, a full-fledged recession did not materialize. Dimon suggested that quantitative tightening (QT) had already begun some time ago, with the Fed gradually withdrawing liquidity injected through quantitative easing (QE) over the previous two years. While QT could continue, the cautious approach taken by the Fed suggests it may be prolonged due to high interest rates.
Market Sentiment vs. Long-Term Outlook
Dimon believes that markets are focused on short-term gains and fail to grasp the long-term consequences that could lead to a recession. Despite the absence of a recession thus far, Dimon warns that the current situation is likely to result in one eventually.
Hot Take: Preparing for Economic Uncertainty
Jamie Dimon’s cautionary words about a potential recession in the US serve as a reminder to be prepared for economic uncertainty. While he does not provide a specific timeline or outcome, Dimon highlights the cyclical nature of credit cycles and suggests that a recession is predictable. He encourages individuals and businesses to consider this possibility and take appropriate measures to safeguard their financial well-being. By analyzing past growth patterns, understanding global spending trends, and monitoring monetary policies, you can make informed decisions to mitigate risks and navigate potential economic downturns successfully.
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