When it comes to Wall Street bandwagons, Jamie Dimon is often the cautionary voice in the crowd. While the street is excitedly eyeing rate cuts in 2024, the JPMorgan Chase CEO remains unconvinced that the Fed has put recession fears to bed for good.
Many big banks believe a recession—if it did happen—would be mild.
Bank of America, for example, believes the U.S. economy will have a soft landing, Citi says there is a "chance" of recession, and Goldman Sachs puts its recession likelihood at just 15%.
But Dimon warned peers not to be lulled into a false sense of security, dismissing calls of a so-called "Goldilocks" growth where the economy is neither too hot nor too cold.
It's a theory backed by Wharton Professor emeritus Jeremy Siegel, who this week said: “The data is not too strong to encourage the Federal Reserve to tighten, and certainly not too weak to start a slowdown in corporate profits.”
Dimon disagrees, saying a host of back-seat issues could disrupt the fore in the next 12 months.
"Right now the market's kind of priced in a soft landing," he told Fox Business in an interview released yesterday.
"You see that in equity prices, credit spreads being very narrow. But the extra money that [consumers] got during COVID, trillions of dollars, that's kind of running out. It's been pushed out for a whole bunch of reasons but it runs out this year.
"The government has a huge deficit which will affect the markets. I'm a little skeptical on this Goldilocks scenario. I still think the chances of it not being a soft landing are higher than other people."
America's national debt has increased to an eye-watering $34.01 trillion following rounds of fiscal stumble during and after the coronavirus pandemic.
The record-breaking figure has begun to spook analysts with Maya MacGuineas, president of the Committee for a Responsible Federal Budget, describing the milestone as a "truly depressing ‘achievement.’”
But despite his outlook being less optimistic than others Dimon, who has led JPMorgan for nearly 20 years, said leaders will be able to navigate a recession.
He believes the outcome wouldn't be "terrible," whether it's a mild or heavy recession, adding: "All of us in business have to learn to deal with the ups and downs of the economy. But I do think the cross-currents are pretty high: the money running out, rates are high, QT (quantitive tightening) hasn't happened yet."
Dimon also notes the "cross-currents" he's concerned about aren't restricted to government or Fed action, again reiterating points about geopolitical tension.
Russia's invasion of Ukraine and the Israel-Hamas conflict "affect oil, gas, food, migration, economic relations around the world," he said. "The geopolitical stuff is something you can't look at this year and say it will not have an effect."
A return to the 1970s
At the tail-end of 2023 analysts were enjoying a trip down memory lane: many were taking inspiration from decades gone by to see how those situations could inform modern-day economists.
Deutsche Bank, for example, said the 2020s look similar to the 1970s on account of a surge in energy prices and rising geopolitical tension.
Meanwhile, UBS had a far more positive outlook, saying the economy is headed back to a Clinton-like era of the bustling 1990s.
Goldman Sachs dismissed the use of comparison altogether, saying the tactic is "too simple" and likely to be wrong.
Of the scenarios, Dimon is chiming with Deutsche Bank's 1970s outlook.
"$2 trillion of fiscal deficit, the infrastructure and IRA act, the green economy, the remilitarization of the world, the restructuring of trade, are all inflationary. That looks a little more like the 1970s to me," he said.
As a result, inflation may come down towards the Fed's 2% target before bouncing back up to 3% or more, he said.
Consumers look good, but that could change
Overall economists have been surprised and thrilled by the resilience of U.S. consumers.
Despite fears of 'YOLO spending' coming to an end and "cracks" beginning to appear at the lower ends of the spending ladder, shoppers spent decisively over the Black Friday and Christmas break.
Dimon echoed fellow banking titan Brian Moynihan, CEO of Bank of America, in saying that consumers are in fairly decent shape.
"So the good news is the consumer has jobs," said Dimon. "Wages are going up finally more at the lower end, home prices are up which is good for their balance sheets, credit is normalizing but is still lower, stock prices are up. The consumer is in good shape."
