Hopes that inflation is on a permanent low and the economy is recalibrating itself were hit this month when the The latest price report came in hotfollowed by a strong work report shows that the labor market continues to be strong. While more jobs are good news for many Americans, it means the economy continues to be hot, a bad sign of declining inflation. And while JP Morgan Chase CEO Jaime Dimon thinks the economy is in relatively good shape, he also thinks the Fed has an uphill battle ahead of it to control rates.
“The US economy right now is doing very well. Consumers have a lot of money. They’re spending. There’s a lot of work,” Dimon said in a interviews with CNBCby Jim Cramer Thursday. “Today. In front of us, there was a scary thing. You and I know that there will always be uncertainty. That’s a normal thing.”
“I have all the respect for Powell, but the truth is that we’ve lost a little bit of control over inflation,” Dimon said, referring to Fed Chair Jerome Powell.
The Fed has raised interest rates eight times in the past year in a bid to curb inflation, pushing the annual consumer price increase from a 40-year high of 9.1% last year. warm up to 6.4% in December. Earlier this month, Powell struck a somewhat optimistic tone by repeatedly mentioning “disinflation“and Fed governor Christopher Waller repeatedly called the latest economic data “good news” in a January SPEECH.
But Dimon said interest rates could “potentially” stay higher for a while longer as the Fed struggles to bring down inflation, echoing statements of St. Louis Federal Reserve President James Bullard this week, who cited the strong labor market as evidence that “the US economy is stronger than we previously thought.” The tepid economy means there is a “harder road ahead for disinflation” than first thought, Bullard said.
“Our current risk is that inflation will not go down and accelerate, then what will you do? We have to react,” Bullard added, noting that the Fed will not begin cutting rates until 2023 as it seems like only a month ago.
Dimon added that strong U.S. consumer spending activity is “inflationary,” while major government spending programs have been announced over the past few years, including last year’s $280 billion CHIPS Act and the $1 trillion infrastructure bill passed in 2021 represents a “sea change” for the economy. Dimon said acts like the infrastructure bill have “a lot of good things in them,” but added that high levels of government spending will likely make inflation harder to bring down, potentially creating bigger and longer-lasting challenge for the Fed.
Last year, Dimon warned the US economy one in three chance of avoiding a recessionlater said his bank was preparing for an economic “storm” while warning investors to prepare for long-term market volatility. she softened his tone in January, predicting a “soft landing” or a “mild” recession is more likely than a severe economic downturn, but warned that the US still faces the one in three chance of a severe recession.
Demon still nervous about the future of the US economy in an interview with Reuters earlier this month. “People need to take a breather on this one before they declare victory,” he said, adding that there is a decent chance the Fed will have to raise rates despite inflation to acceptable levels.
In his interview with CNBC on Thursday, Dimon said it may take a while for the Fed to reach its 2% inflation goal, joining the ranks of other bankers and economists such as Mohamed El-Erian who suggested that attempts to achieve that traditional post inflation target could eventually trigger a severe recession.
However, Dimon cautiously added: “We’ll be fine.”
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