Jamie Dimon warns rates could stay high as market mood shifts

JPMorgan Chase chief executive Jamie Dimon has warned that US inflation and interest rates could remain higher than markets expect because of high government spending.

In his annual letter to shareholders, the head of the largest US bank by assets said JPMorgan had plans for interest rates going above 8 per cent and as low as 2 per cent.

“It is important to note that the economy is being fuelled by large amounts of government deficit spending and past stimulus,” Dimon wrote. “There is also a growing need for increased spending as we continue transitioning to a greener economy, restructuring global supply chains, boosting military expenditure and battling rising healthcare costs.

“This may lead to stickier inflation and higher rates than markets expect,” he added.

Dimon’s comments on Monday come as financial markets have steadily pared back their expectations for how many rate cuts the US Federal Reserve will make this year.

Markets are pricing in two quarter-point rate cuts by the Fed in 2024 from the current 23-year high and only a 50 per cent likelihood of a third, in a dramatic reversal from the start of the year when between six and seven cuts were expected. 

US Treasuries continued to sell off on Monday, pushing the interest rate-sensitive 2-year Treasury yield up 0.05 percentage points to 4.78 per cent, its highest level since November. Benchmark 10-year Treasury yields rose 0.05 percentage points to 4.43 per cent.

Dimon also used his letter to warn that a boom in private credit could become an “unexpected risk in the markets”, arguing that the fast-growing industry was full of “very smart and creative” operators but “not all players are that good”.

“And problems in the private credit market caused by the bad players can leak on to the good ones, even though private credit money is locked up for years,” Dimon said. “If investors feel mistreated they will cry foul, and the government will respond by putting a laser focus on the business.”

He said it was a “reasonable assumption that at some point regulations will focus on the private markets as they do on the public markets”.

Dimon warned that recent geopolitical events “may very well be creating risks that could eclipse anything since world war two”, pointing to Russia’s full-scale invasion of Ukraine and the current violence in the Middle East.

“The fallout from these events should also lay to rest the idea that America can stand alone,” Dimon said. “Of course, US leaders must always put America first, but global peace and order are vital to American interests.”

On artificial intelligence, Dimon said JPMorgan was “completely convinced the consequences will be extraordinary” and likened the technology’s potential impact to that of the printing press, electricity and the internet.

Dimon, 68, has led JPMorgan since 2006 and the subject of his eventual successor is a hotly debated topic on Wall Street.

The bank said in a proxy filing also released on Monday that “an orderly CEO transition in the medium term” was a top priority for its board of directors.

JPMorgan said the board was “spending significant time on developing operating committee members who are well known to shareholders as strong potential CEO candidates”, and name-checked several senior executives involved in a recent leadership shuffle.