JPMorgan's Jamie Dimon warns of the risk of 7% interest rates: "Are you prepared?"

  • Jamie Dimon has warned that it's possible for US interest rates to rise as high as 7%.

  • "If I was advising a company, I would say, are you prepared for 7% rates? Are you prepared for a recession?," the JPMorgan CEO said.

  • He made the comments in an interview with the Economic Times.

Jamie Dimon has warned that it's possible for US interest rates to surge as high as 7%, thanks to inflationary pressures stoked by factors including huge fiscal spending and the global energy transition.

"I absolutely think they're possible," the JPMorgan CEO told the The Economic Times in an interview, referring to 7% rates. "If I was advising a company, I would say, are you prepared for 7% rates? Are you prepared for a recession?"

The Federal Reserve's benchmark interest rate is currently in the 5.25%-5.5% band, up 525 basis points since early 2022. The central bank has raised rates at the fastest pace since the 1980s to combat inflation that hit a four-decade high last year.

Dimon didn't go so far as to predict a further 150 basis points of rate rises, but in his view it's not out of the question.

"And two years ago I said 5% was possible, but I'm not saying they're gonna happen. I'm just saying how can you take it out of the range of possibility? Global fiscal spending is higher than we've ever seen probably in the history of mankind other than maybe World War II," he told the Indian publication.

"I think there are some long-term trends, which have gone from disinflationary to inflationary," he added. "The benefit of all this trade going to China is gone. The green economy, we estimate will need $4 trillion a year, the IRA Act, the Chips Act, the re-militarization of the world, fiscal spending, what part of that's disinflationary?

JPMorgan, the biggest US bank, is preparing for all eventualities during the Fed's fight against inflation, according to Dimon.

"The rise from zero to two or three - you had to expect. People didn't expect like the three to five," he told the outlet.

"They definitely don't expect five to seven. So my guess is the five to seven will have more of those consequences than the three to five and then if you have the recession and people have to roll over bonds and credit spreads gap out you are going to see more pain there. So let's all hope it doesn't happen."

Investors have been on edge since the Federal Reserve last week warned that rates could remain higher for longer, causing bond yields to spike. The 10-year Treasury rate has surged 50 basis points in September alone to climb above 4.50% and hit the highest level since 2007.

A decline in inflation from last year's highs and a buoyant labor market have helped Wall Street hold out hopes for a soft-landing scenario, but Dimon has remained consistently cautious on the economy's prospects.

Read the original article on Business Insider