Jamie Dimon Warns U.S. Might Face Interest-Rate Spike

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JPMorgan Chase JPM Chief Executive Jamie Dimon warned that U.S. interest rates could soar to 8% or more in coming years, reflecting the risk that record-high deficit spending and geopolitical stress will complicate the fight against inflation.

“Huge fiscal spending, the trillions needed each year for the green economy, the remilitarization of the world and the restructuring of global trade—all are inflationary,” Dimon wrote in an annual letter to JPMorgan Chase shareholders released on Monday.

Dimon, head of the nation’s largest bank, acknowledged in his 61-page letter that the U.S. economy has remained resilient despite abundant skepticism by forecasters including him. But he also warned that a fractious global backdrop, including wars in Ukraine and the Middle East, could amplify economic stresses and put the expansion in jeopardy.

Once again sounding a cautious note, Dimon said he questioned the optimism in financial markets. He said investors and traders expect the Federal Reserve to engineer a so-called soft landing in which the economy avoids a recession despite a sharp rise in interest rates in recent years.

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Dimon’s outlook on the economy has been cautious for years. He warned in 2022 that a “hurricane” was about to hit the U.S. economy as interest rates were rising. He has recently walked back some of his gloomiest statements.

But Dimon is still not ready to concede that the risk of extreme volatility has subsided. Dimon said his bank is preparing for a range of scenarios where interest rates could drop as low as 2% or head to “8% or even higher,” based on where the economy is headed. The 10-year Treasury rate recently was 4.42%.

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Dimon also warned that the federal government was overstepping its bounds in trying to add new capital requirements on banks. At the same time, he said that more instability could reappear in the banking system if interest rates creep higher.

“A scenario where the federal funds rate hits more than 6% would likely entail more stress for the banking system and for highly leveraged companies,” Dimon said. The fed-funds rate recently was 5.33%. “Rates have been extremely low for a long time, and it’s hard to know how many investors and companies are truly prepared for a higher rate environment.”

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