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The world may not be prepared for the Federal Reserve’s benchmark interest rate rising to 7%, JPMorgan Chase (NYSE:JPM) CEO Jamie Dimon said in an interview with newspaper Times of India.
“The worst case is 7% with stagflation,” he told TOI while in Mumbai for an investor summit. “If they are going to have lower volumes and higher rates, there will be stress in the system.”
The banking chief called on clients to be prepared for that kind of stress. “Warren Buffet says you find out who is swimming naked when the tide goes out. That will be the tide going out,” Dimon warned. “These 200 basis points (from 5% to 7%) will be more painful than (going from) 3% to 5%.”
Dimon mentioned some of the risks that could lead to a hard landing for the U.S. economy including the Ukraine war and oil prices.
“We have to deal with all these serious issues over time, and your deficits can’t continue forever,” he said. “So rates may go up more. But I hope and pray there is a soft landing.”
Dimon’s comments are in contrast to the wider consensus that the Federal Reserve is nearing the end of its tightening cycle, which saw the benchmark rate rise to 5.5% – the highest level in 22 years.
Fed officials have signaled that rates will likely stay higher for longer. Twelve of the voting members of the Federal Open Market Committee see one more rate hike this year.
UBS economists have projected a soft-landing environment, with no further rate hikes this year.
