JPMorgan Chase CEO Jamie Dimon called on central banks to exercise ‘’humility about financial forecasting’’ at the Future Investment Summit in Riyadh, Saudi Arabia, last week. The banking giant also slammed banks’ recent track record of predicting economic outcomes as ‘’100% dead wrong.’’
Jamie Dimon on Economic Policies, Macroeconomic Conditions
In his address to the summit, Dimon was staunchly critical of current U.S. economic policies, especially rapid increases in fiscal spending, which he referred to as higher ‘’than it’s ever been in peacetime.’’ Dimon called the effectiveness of raising key stakes—the most prominent economic policy of the past 18 months—into question, given the rapidly swelling government debt.
‘’There’s this omnipotent feeling that central banks and governments can manage through all this stuff. I am cautious. I don’t think it makes a piece of difference whether rates go up 25 basis points or more—zero, none, nada.’’
Dimon also reiterated the concern he has already expressed on multiple occasions, ‘’whether the whole curve goes up 100 basis points,’’ urging institutions and investors at least ‘’be prepared for it,’’ although conceding that he couldn’t know whether further rate rises would happen.
These comments are in line with Dimon’s warnings issued in the JPMorgan Chase third-quarter report last week. While acknowledging the bank’s ‘’solid’’ Q3 results and stable outlook, he also stressed the continued economic and geopolitical uncertainty as something both consumers and financial institutions need to be aware of going into 2024. He identified several warning signs that ‘’this may be the most dangerous time the world has seen in decades.’’
Dimon emphasized that the current combination of ineffective economic policies and broader factors, such as military conflicts in Ukraine and Israel, could result in ‘’a broad range of outcomes.’’ This warning echoes the worry the financier voiced at the Riyadh summit that the U.S. could be entering a 1970s-like era of economic stagnation.
Calling for a sober view of the state of the economy, he pointed out that while consumer and business activity in the U.S. remained ‘’healthy,’’ it was increasingly being sustained by consumers ‘’spending out their excess cash buffers.” Secondly, he reiterated his view that U.S. fiscal policies, including increased fiscal spending, were just not working to contain inflation, which would inevitably lead to further rate hikes.
Another Voice of Criticism
Dimon is not the only one to criticize the Fed’s interest rate-hiking frenzy as a delayed and ineffective measure that resulted from a misjudgment of rising inflation. Back in September, Nobel prize-winning economist Joseph Stiglitz characterized the Fed’s insistence back in 2021 that the spike in inflation was ‘’transitory’’ as ‘’really bad economics’’ in an interview with CNBC.
Stiglitz called out the Fed’s failure to ‘’do their homework’’ as the real reason the U.S. is where it is in terms of inflation and sky-high interest rates. As Stiglitz explained, ‘’The Fed thought the source of the inflation that began in the post-pandemic era was excess demand.’’
All the while, other factors were driving inflation, such as the shortage of key components like semiconductor chips. The Fed failed to see the enormity of the impact of post-pandemic industry shortages on the economy. It didn’t begin raising interest rates until March 2022. Since then, it has hiked rates 11 times, bringing them to a 22-year high as of October 2023.
Is “America’s Least-Hated Banker” Right?
Dimon’s assessment of the Fed’s prediction ability as ‘’100% dead wrong’’ suddenly doesn’t seem hyperbolic. Generally, his statements rightly carry considerable weight in the finance world. A titan of banking, he has been at the helm of JPMorgan Chase since 2005, making it the most successful U.S. bank in the process. Dimon is well known for his integrity and humble approach and was once referred to by The New York Times as “America’s least-hated banker.”
Under Dimon’s leadership, Chase weathered the storm of the 2008 financial crisis better than most. He was a key figure in the rescue of the banking sector following the crash, buying out Bear Stearns and assets at Washington Mutual.
In March 2023, he again played a key role in a major bank rescue operation following the collapse of Silicon Valley Bank. Most recently, Dimon attracted the attention of finance media by announcing that he will be selling 1 million shares of JPMorgan Chase beginning in 2024.
JPMorgan Chase sought to reassure stakeholders that the selling of the shares was not a matter of concern. The regulatory filing states, “Mr. Dimon continues to believe the company’s prospects are very strong, and his stake in the company will remain very significant.” The bank further explained that the sale would be made for tax planning and wealth diversification purposes, a common practice in the financial sector.
Once again, by his own admittance, Dimon’s predictions are not set-in-stone truths. In June, he issued similar warnings to investors to ‘’brace [themselves]” against a ‘’hurricane’’ of unfavorable economic factors. However, so far, despite his entirely reasonable warnings, the ‘’hurricane’’ hasn’t hit the U.S. economy yet. Real estate investors will have to wait to see how it plays out.
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.