FXTM JPMorgan Chase CEO warns the market: Get ready for the Federal Reserve's interest rate of 7% or higher!

Dimon, chief executive of JPMorgan Chase, has twice warned markets to brace for the Federal Reserve's higher interest rate of 7 per cent, pointing to two extraordinary storms that would sweep through the US economy with adverse consequences.

Jamie Dimon, the chief executive of JPMorgan Chase, has twice warned the market that it needs to prepare for the Federal Reserve's higher interest rate of 7 percent, stressing that inflation will not fall. He said two extraordinary storms will sweep the U.S. economy, starting with excessive fiscal spending, which is now unseen in deficits and quantitative easing, and the geographical factors that will affect all global relations and trade alliances between China and the United States.

"There were two things that were extraordinary today that could have different outcomes, think of them as storm clouds," Mr. Dimon said. "We don't know if they're going to hit the ball, when they're going to hit the ball, or what they're going to do, so I don't predict."

"But I'll tell you what I'm worried about. One is that the fiscal spending is so large, it's the largest in peacetime history, and the impact is from the United States to the world, and the deficits and quantitative easing are things we've never had before. I don't think inflation will continue to decline, probably not. So interest rates could be higher."

Mr. Dimon emphasised: "The biggest storm clouds are geopolitical, this is a humanitarian crisis in Ukraine, not far from here is a European conflict that has killed 500,000 people, this is nuclear blackmail that will affect all global relationships and trade alliances between the US and China."

"We don't know the impact of these things, and economically, we could have a soft landing, we could have a mild recession, we could have a deeper recession. Obviously, that could lead to bad outcomes."Mr. Dimon repeated his recent warning that the Fed could raise interest rates to 7 per cent, stressing: "Prepare for higher interest rates and slower growth, and the worst economic outcome will be stagnant inflation."

"Obviously, if that happens, you're going to see a lot of people in trouble," he warned.

With U.S. Treasury yields soaring wildly, some analysts in the market are beginning to question the possibility of the Federal Reserve achieving a soft economic landing, but Chicago Fed President Austan Goolsbee said he sees no clear signs that the U.S. economy is deviating from the golden path towards its 2% inflation target.

"I don't think there's any convincing evidence that the U.S. economy has deviated from the golden path," he told Bloomberg in an exclusive interview on Thursday (October 5).

Goolsby and other officials note that the Federal Reserve has aggressively raised interest rates by 5.25 percentage points over the past 18 months, cooling inflation that is reaching a 40-year high in 2022 and has so far not led to the higher unemployment rate that has often been seen in the past.

The Federal Reserve's preferred inflation measure was reported at 3.5% in August, half its peak in 2022, while the unemployment rate was 3.8% in August, only slightly higher than the 3.7% recorded a year earlier.

According to the dot-plot projections released at the September FOMC decision-making meeting, another 25 basis point rate hike is likely this year, bringing the rate to 5.50-5%. The latest economic projections also show that Fed officials expect the unemployment rate to rise only modestly to 4.1% next year, and the base rate to fall slightly to 5.1%.

After the Federal Reserve released its outlook, Treasury yields soared to new 16-year highs, triggering a sudden tightening in financial conditions that could stall economic momentum and the job market faster than expected. Despite the sudden jump in long-term interest rates, Mr. Goolsby said, Treasury yields could be higher than they were six months ago, when the banking crisis raised fears of an immediate recession because of other immediate problems.

He believes that factors unrelated to the Fed's actions could divert the economy from the "golden path", including continued increases in energy prices, prolonged strikes by auto workers, and external shocks such as the federal government shutdown. He also pointed out that if long-term yields rose enough to trigger a spike in unemployment or a sharp cooling of economic activity, the Fed would adjust its approach.

"We will absolutely be monitoring, and the disease is thinking about that so as not to hit the financial or real economy," he stressed, adding that all eyes were now on keeping inflation down.

Other Federal Reserve officials have also remained largely optimistic about rising yields, with Mary Daly, the non-voting old gold Fed chair this year, saying on the same day that as long-term interest rates rise, the need for the Fed to take further action diminishes and may not need to do more.

A rise in long-term borrowing rates would dampen companies' willingness to recruit and invest, cooling the economy and easing inflationary pressures, she said, noting that yields had risen quickly but not out of order, and so far so good.