JPMorgan Chase & Co. Chief Executive Jamie Dimon warned on Friday (14th) that the Federal Reserve (Fed) could raise interest rates by as much as 7 yards, and that tightening policy does not have to be “sweet” and “mild”.
The US Department of Labor announced on Wednesday (12th) that the US consumer price index (CPI) in December last year increased by 7% over the same period of the previous year, the largest increase in nearly 40 years. Investors in federal funds futures are forecasting a rate hike of 3 to 4 yards in 2022 and around 6 yards next year, according to CME’s FedWatch tool.
The Fed is targeting inflation as its primary goal and raising interest rates has become one of its powerful tools to combat inflation, with the last rate meeting hinting at a 3-yard (75 basis point) rate hike this year. Goldman Sachs and Deutsche Bank both expect the Fed to raise interest rates by 4 yards this year.
However, JPMorgan Chase CEO Dimon noted on Friday that the Fed could raise interest rates more than the market is currently pricing in in response to rising inflation.
He said bluntly: “The rate hike will exceed the implied curve… My view is that there will be more than 4 yards, (even) maybe 6 yards or 7 yards.” Although Dimon did not specify the exact timetable for rate hikes .
Just because the Fed has recently leaned toward gradual tightening, doesn’t mean that accelerating rate hikes would be crossing the line. Dimon recalled the model set up by former Federal Reserve Chairman Paul Volcker, who after taking office in 1979 aggressively raised interest rates to fight the inflation monster, raising rates several yards at a time.
“I’d be wrong when I said the path of rate hikes was sweet and dovish, and no one in the market would be surprised,” Dimon said.
David Ellison, director of Hennessy Large Cap Financial Fund, criticized Dimon for making irresponsible remarks that could have repercussions for markets.
Ellison responded: “If Dimon’s estimate is correct, it means rates could rise by 2% by the end of the year. If that’s the case, the market will be in full swing, just because the last time the Fed did it, the market was beaten. .”