As investors cheer 'disinflation,' Jamie Dimon says not so fast: Morning Brief

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Investors betting on U.S. stocks took a victory lap last week after Federal Reserve Chair Jerome Powell embraced the presence of “disinflation” in the U.S. economy.

JPMorgan (JPM) chief executive Jamie Dimon, however, argues this excitement is premature.

“I just think people should take a deep breath on this one before they declare a victory because a month’s number looked good,” Dimon said Wednesday in an interview with Reuters in Miami, Florida, referring to recent signs inflation pressures have eased in the economy.

“I think it’s perfectly reasonable for the Fed to go to 5% and wait a while and see” the lagged effects of its policy on inflation in the economy, Dimon added.

 

Jamie Dimon, Chairman of the Board and Chief Executive Officer of JPMorgan Chase & Co., gestures as he speaks during an interview with Reuters in Miami, Florida, U.S., February 8, 2023. REUTERS/Marco Bello

Dimon's pushback on recent confidence that the price increases are stabilizing came one day after Powell said in an interview with financier David Rubenstein at The Economic Club of Washington, D.C. that the "disinflationary process has begun" in the U.S. economy.

Even as Powell added "additional rate hikes were needed," investors again seemed to shrug off this promise for tighter policy.

Last year when Dimon correctly prophesied the aggressive bout of interest rate increases that the U.S. central bank would proceed to unleash on the economy, he issued the following warning during an earnings call: "This whole notion that it’s somehow going to be sweet and gentle and no one is ever going to be surprised I think is a mistake."

At the time, investors were bracing for three or four rate hikes.

In the end, the Fed raised rates at the most aggressive pace in two generations, increasing its benchmark interest rate at each of its final seven meetings of 2022, bumping up its benchmark interest rate target by a cumulative 4.25% in the process.

 

Dimon's comments, as ever, are made as a bank executive, not a monetary policymakers.

But it was a little more than one year ago that Dimon was among the first voices on Wall Street to predict as many as six or seven increases would be on the table in 2022.

"Inflation may not come down like people think," Dimon told Reuters on Wednesday.

DataTrek's Nicholas Colas pointed out Powell's comments did not sway the market's expectations of the likely path of monetary policy this year. In the aftermath of the speech, the rate-sensitive two-year Treasury yield was unchanged at 4.46% — while federal funds futures were at 4.50-4.75%.

These moves, or the lack thereof, indicated policy rates over the coming 24 months could remain where they are now, rather than the 5% Fed officials have warned about.

Dimon said if inflation comes down to 3.5% or 4% and fails to budge, the Fed may have to "go higher than 5% – and that could affect short rates [and] longer rates."

Dimon's position is also shared by Federal Reserve officials, who have consistently asserted the terminal rate for its current hiking cycle will likely be above 5%.

And if last year's experience tells us anything, bet against Jamie Dimon at your own risk.