The world is facing an economic “hurricane” as the war in Ukraine coincides with rising inflation and rising interest rates, senior US banker Jamie Dimon has warned.
Oil prices are at risk of soaring to $175 a barrel in the coming years, JP Morgan chairman and chief executive officer predicted, with a possible US recession.
He upgraded his warning over previous “storm” predictions, saying unprecedented risks combine with unpredictable consequences.
At a conference hosted by Alliance Bernstein, Mr. Dimon said: “I said these are storm clouds, these are big storm clouds here. It’s a hurricane. It’s quite sunny at the moment, things are going well. Everyone thinks the Fed can handle it.
“This hurricane is right out there on the road, coming toward us. We just don’t know if it’s a little or Superstorm Sandy. And you must arm yourself.”
The level of unpredictability of the war and the general economy means the bank is closing the hatches.
Mr Dimon, the longest-serving bank chief on Wall Street and the only one in office during the financial crisis, said: “JP Morgan is bracing ourselves, we’re going to be very conservative on our balance sheet.”
Ordinary people face significant cost pressures as Russia’s invasion of Ukraine drives up energy and food costs.
He said: “Wars go badly. They go south, they have unintended consequences. This is messing up the world’s commodity markets – wheat, oil, gas – which I believe will continue.
“We are not taking the right actions to protect Europe from what will happen to oil in the short term. It almost has to go up in price.”
A lack of investment in oil and gas means energy will become more expensive, which ironically will have dire consequences for the environment, Mr Dimon predicted.
He said: “If oil prices go up to $175 or $150, which I think is on the horizon, not immediately but later, CO2 will not go down as people buy less oil and gas, it will go because the poor countries, that need oil and gas to feed and heat their citizens will not burn oil and gas, they will burn coal. CO2 will increase.”
At the same time, high stimulus-hyped US household spending, which is currently fueling US growth even as it fuels inflation, could be threatened with a downturn.
Mr Dimon said: “If a severe recession starts sometime in 2023, wage inflation could literally go to zero overnight.”
Central banks, which intervened in the recent crisis with low interest rates and a flood of liquidity in the form of quantitative easing (QE), are now being forced to hike rates and initiate quantitative tightening (QT) in the face of a surge in inflation.
However, this is an unprecedented situation with uncertain economic implications.
“The Fed must now counter this with rate hikes and QT. And what’s new is not the rate hikes, it’s the QT,” he said.
“They have no choice because there is so much liquidity in the system. You need to move some of the liquidity to stop speculation to drive down house prices and the like. And you’ve never been to QT.”
The scale of the challenges is such that he admitted a tremendous amount of uncertainty about the outcome: “I think it’s okay to hope that it turns out well in the end. I hope so. These are my goldilocks. Who the hell knows.”
https://www.telegraph.co.uk/business/2022/06/01/ftse-100-markets-live-news-russia-oil-inflation-borrowing/ JP Morgan boss warns of upcoming economic ‘hurricane’