September 1, 2024
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Beige Book | August 2024
The August 2024 Beige Book has been published by the Federal Reserve, giving an overview of economic conditions around the country.
A chilly scenario for the U.S. economy, in which interest rates climb as high as 8% as the effects of the unprecedented monetary policy taken to combat inflation take hold, is still very much on the table, according to JPMorgan Chase CEO Jamie Dimon.
The odds of a goldilocks soft landing outcome for the economy are “a lot lower” than the consensus of a 70% to 80% likelihood, Dimon outlined in his annual letter to JPMorgan shareholders Monday.
Coupled with Dimon’s concerns about the potential for “stagflation,” a recession characterized by lingering high inflation, he warned interest rates could soar to “8% or even more,” a far cry from the already 22-year high rates of over 5% and going against conventional wisdom of a looming decline in rates (U.S. interest rates have not been 8% or higher since 1990).
Dimon explained there are several “persistent inflationary pressures” which could keep price increases sticky, including the rise in military conflict globally and the lingering effects of aggressive policy from central banks worldwide coming out of the pandemic.
The billionaire Dimon also warned about the potential for carnage for both equity and debt investors should a higher-rate scenario play out, noting stock valuations are already at their “high end” and credit conditions are “extremely tight.”
Dimon’s warnings come as investor sentiment looks rosy—major stock indexes sit at record highs as the market eagerly awaits lower interest rates. JPMorgan is by far the largest American bank by assets and market value, holding roughly $2.7 trillion in domestic assets by the end of last year. Dimon is worth about $2.2 billion, according to Forbes’ latest estimates, owing most of his fortune to his stake in his bank. JPMorgan grew its already massive book by 6% last year thanks in part to its May 2023 acquisition of failed regional bank First Republic, a takeover Dimon characterized Monday as “something that we would have done just for ourselves” but rather a decision to stabilize the U.S. banking system writ large.
The tone of Dimon’s wide-ranging 58-page note was not just alarmist: among Dimon’s positive observations was the impact of artificial intelligence, which he likened to electricity, the printing press and the steam engine in terms of potential societal impact.
“I have a confession to make: I am a full-throated, red-blooded, patriotic, free-enterprise (properly regulated, of course) and free-market capitalist,” Dimon wrote after beaming about his company’s diversity, equity and inclusion (DEI) initiatives, an apparent nod to the notion of DEI as a bogeyman among other billionaires and powerful figures.
JPMorgan will report first-quarter financial results Friday morning, kicking off earnings season.
