US investment bank JPMorgan is preparing for an “economic hurricane”. Its boss, Jamie Dimon, advises investors to arrange the same. His bank is preparing a very conservative approach. There are several reasons. Dimona is particularly concerned about the war in Ukraine, as well as fears that the Fed is losing its fight against inflation, writes CNBC.
“You know, I said storm clouds were gathering over the US economy, but I’m going to change my previous statement. It’s a hurricane, “Dimon said at a financial conference in New York on Wednesday.
In the case of hurricanes, it is usually not immediately clear how devastating they will be. Although conditions seem fine at the moment, “it’s sunny,” no one knows if “Superstorm Sandy will show up,” he added.
And the bank is preparing for just such a development. He advised the investors present to arrange the same.
There are two main factors that concern Dimon. First, the Fed has indicated that it will cancel its emergency bond-buying programs. The so-called quantitative tightening (QT) instead of the current easing begins this month. The US Fed will begin reducing government bond and mortgage-backed securities purchases by $ 47.5 billion per month in the first three months, followed by $ 95 billion per month. The central bank is trying to reduce its balance sheet, which grew to $ 9 trillion during the quantitative easing in the pandemic.
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“We’ve never had a similar quantitative tightening, so you’re looking at something that goes down in history,” Dimon said. He said some quantitative easing instruments had failed before, including negative rates, which he called a “huge mistake.”
However, according to him, central banks “have no choice because there is too much liquidity in the system.” It must remove some of the liquidity from the market so that real estate prices and others can fall.
Another risk that Dimon perceives is the war in Ukraine and its impact on commodity prices, including food and fuels. According to him, oil must naturally increase in price and attack $ 150 or $ 175 per barrel.
In its outlook from last month, JPMorgan lowered its growth estimate for the US economy for the second half of this year to 2.4 percent from three percent. For the first half of 2023, it estimates growth of 1.5 percent instead of 2.1 percent. He cites falling stock prices and higher mortgage rates as a reason, which will reduce the growth rate of US household debt.
Shares of JPMorgan Chase fell nearly two percent to $ 129.81 after Dimon’s statement. Since the beginning of the year, 18 percent will lose.
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