The Economic Hurricane Predicted by Jamie Dimon Explained
Jamie Dimon, CEO of JPMorgan Chase, states that JPMorgan Chase is preparing for an economic hurricane. (Bloomberg)
Jamie Dimon predicts an Economic Hurricane that is powered the following factors:
1. Inflation
Right now there is inflaiton on both sides of the equation, with there being increasing demand and reducing supply. This is due to the massive stimulus by the Federal Reserve, as seen on the value of assets on the Fed’s balance sheets that ballooned from about $4 trillion to about $9 trillion over the span of 2 years, from 2020 to 2022. (Statista) Total cash balances have increased from about $0.39 trillion to about $1.65 trillion these past two years. (Trading Economics) As a result, there has been a huge spike in savings in the last two years, and now an increase in consumer spending. The GDP recovery was too quick, as compared to the recovery in 2008.
U.S. Government Deposits: Total Cash Balance
The government decided to do big stimulus payments for citizens, as a result cash balances increased from ~$0.39T to ~$1.65T, from 2020 to 2022. (Trading Economics)
2. Quantitative Tightening
Quantitative tightening, in other words, is removing liquidity from the economy or the opposite of what the Fed was doing last year. QT has never really been done at this scale before. As a result, we don’t know what’s going to happen to markets, the market reaction, and the right amount to control inflation. The government tried to do quantitative tightening from October 2017 to July 2019, and the market performance was terrible, and this led the Fed to stop doing quantitative tightening altogether, until recently. According to Vanguard, the Fed’s plan is to “reduce its $8.5 trillion balance sheet beginning June 1, when it will no longer reinvest proceeds of up to $30 billion in maturing Treasury securities and up to $17.5 billion in maturing agency mortgage-backed securities per month. Beginning September 1, those caps will rise to $60 billion and $35 billion, respectively, for a maximum potential monthly balance sheet roll-off of $95 billion.” (Vanguard)
United States Gross Domestic Product
GDP recovery in 2008 was gradual, and GDP recovery from 2020 happened a bit too quick. (FRED)
3. War in Ukraine
A major factor, as it is ruining commodity markets of the world, and causing shortages in food and oil. In addition, we do not know the outcome of this war. Dimon’s expectation is that oil will reach prices of $175/barrel.
