JPMorgan Chief Executive Officer Jamie Dimon believes the U.S. is likely headed for recession, but he doesn’t believe systemic problems are imminent.
The head of the largest U.S. bank by assets said Monday at the J.P. Morgan High Yield and Leveraged Finance Conference in Miami that markets may not have fully factored in the possibility that interest rates could remain higher for longer.
Dimon noted that “there are things that are worrisome,” disagreeing that the likelihood of the economy missing out on a recession is high.
“The market is pricing in a soft landing. It’s very likely that’s going to happen,” he told CNBC’s Leslie Picker. “But (the market’s) probability is 70 to 80 percent. I’ll give you half that, and that’s it. .”
The comments come at a time when markets are indeed having to reprice expectations for monetary policy. Earlier this year, futures traders had been betting on a high likelihood of a series of steep rate cuts starting in March, but now they believe easing will not begin until June or July, with three cuts already priced in ——Only half of what was previously expected.
As interest rates rise, markets also have to contend with the Fed reducing its bond holdings, a process known as quantitative tightening. Although the central bank is expected to start tapering its programs soon, it remains another factor in tightening monetary policy.
“Just looking at the year is always wrong,” Dimon said. “All these factors that we talk about: QT, the fiscal deficit, geopolitics, these things may last for many years. But they will play a role and they will have an impact, in my opinion, I am cautious about everything.”
However, Dimon said he did not expect a repeat of some of the other severe downturns the U.S. economy has faced, such as the 2008 financial crisis, when banks were hit by the collapse of the subprime mortgage industry and Wall Street stocks plummeted.
Dimon said rising interest rates and a recession could hit sectors such as commercial real estate and regional banks hard, but would have limited macroeconomic impact.
“If we have a recession, yes, it will get worse. If we don’t have a recession, I think most people will be able to get through it,” he said. “Part of this is just a normalization process. (Interest rates) have been very low for so long. If rates go up and we get into a recession, you’re going to have real estate problems, and some banks will have much worse real estate problems than others.”
As for regional banks, he called the problems faced by institutions such as Silicon Valley Bank and New York Community Bank “peculiar problems” and said private credit could take a hit, but it wouldn’t be systemic.
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