Dimon warns that the Fed could still raise interest rates sharply from here

JPMorgan Chase CEO Jamie Dimon is warning that interest rates could go up quite a bit further as policymakers face the prospects of elevated inflation and slow growth.

Though Federal Reserve officials have indicated that they are near the end of their rate-hiking cycle, the head of the largest U.S. bank by assets said that may not necessarily be the case.

In fact, Dimon said in an interview with The Times of India that the Fed’s key borrowing rate could rise significantly from its current targeted range of 5.25%-5.5%. He said that when the Fed raised the rate from near-zero to 2%, it was “almost no move,” while the increase from there to the current range merely “caught some people off guard.”

“I am not sure if the world is prepared for 7%,” he said, according to a transcript of the interview. “I ask people in business, ‘Are you prepared for something like 7%?’ The worst case is 7% with stagflation. If they are going to have lower volumes and higher rates, there will be stress in the system. We urge our clients to be prepared for that kind of stress.”

To emphasize the point, Dimon referenced Warren Buffett’s much-cited quote, “Only when the tide goes out do you discover who’s been swimming naked.”

“That will be the tide going out,” he said about the rate surge. “These 200 [basis points] will be more painful than the 3% to 5%” move.

The comments come less than a week after Fed officials, in their quarterly economic update, indicated that they could approve another quarter percentage point increase by the end of the year before beginning to cut a few times in 2024.

However, that’s predicated on the data continuing to cooperate. Fed Chair Jerome Powell said the central bank won’t hesitate to raise rates, or at least keep them at elevated levels, if it doesn’t feel like inflation is on a sustained trajectory lower, a higher-for-longer reality with which markets are grappling.

“I would be cautious,” Dimon told The Times. “We have to deal with all these serious issues over time, and your deficits can’t continue forever. So rates may go up more. But I hope and pray there is a soft landing.”

Treasury yields have been on the rise since last week’s Fed meeting, with the 10-year note hovering around 16-year highs.

Wolfe Research cautioned Tuesday that the benchmark note could hit 5% before the end of the year, from its current level near 4.5%.

At the same time, Fed researchers, in a white paper released Monday, noted the high level of inflation uncertainty, which they said “may be acting as a headwind to U.S. growth and pose challenges for monetary policy.” The paper said that such uncertainty can have an impact on industrial production, consumption and investment.