Oil prices, war in Ukraine, inflation are all storm clouds that can get worse: Jamie Dimon

Oil prices, war in Ukraine, inflation are all storm clouds that can get worse: Jamie Dimon – Mail Bonus


JPMorgan Chase’s Jamie Dimon is the only CEO of a major Wall Street firm to have steered an institution through the global financial crisis, tapering anger and Covid, and now a quantitative easing process. In an interview with MC Govardhana Rangan, Bodhisatva Ganguli and Saloni Shukla, ahead of the US Federal Reserve’s decision on interest rates, Dimon details how businesses and nations must navigate the biggest challenges posed by inflation, war and other geopolitical challenges. Edited excerpt:

How dark are dark hurricane clouds for the economy?

The storm clouds are here, the ones you see – high oil prices, the war in Ukraine, high inflation – these are all storm clouds, it can get worse. I don’t think any of us know how bad it’s going to get, because some of these things can easily get worse. I’m not as worried about the Fed’s actions… raising interest rates by 75 or 100 basis points. This is a drop in the ocean as it matters almost nothing except for a little psychological spin on how tough the central bank will be.

The market is obsessed with whether it will be 75 or 100, but you don’t think it’s such a big deal?

The actual impact of a 25 basis point difference in interest rates is not that important, other than the psychological factor which will be a short term effect. If they raise interest rates by 100 basis points, you will have two questions. You’ll say to yourself, they’re being tougher, that’s great. And then you ask yourself, what are they worried about?

The question now is how strong or how likely is the recession?

The amount of monetary stimulus and fiscal stimulus was so great; how could that not fuel more inflation and thus higher interest rates. We’re used to rates moving to 3% or 4% now, but I think it’s just as easy to get used to rates moving to 5%. I think it will be harder for the market to absorb because I think it was a 3.5% rate in their mind rather than 4.25% or 4.5%. Because the government is still spending, inflation may drop a bit, but things like rents in most cities and the consumer price index, or wages, won’t drop. And so I think the Fed may have to hike a little bit more and then their curve will reset a little bit.

You warned of an impending economic hurricane. What kind of trail of destruction is this likely to leave behind?

There are severe storm clouds ahead, but we don’t know if it will be a mild storm that breaks out or a more severe hurricane. Some think it could be a bad recession because war itself is unpredictable, oil and natural energy and food are precarious, inflation is higher, and geopolitics is much more tense with the US and China. So you have all this going on, creating this turbulence, which could make things worse. You can watch any war, most of them have unpredictable results. They can cause far more problems for humanity than for markets. I am not worried about the market.

A generation of central bankers has not seen this kind of price pressure. The one that comes to mind is the times of Paul Volcker. How do you expect central bankers to respond?

This is complicated. First, I respect what they did to recover from Covid. And I think we should admit that. But in hindsight it is clear that they are late. And that probably means they will raise rates more later than they might have done sooner. The other thing is that we have never had this kind of fiscal stimulus. We have never had QE (quantitative easing) like this. So the Fed is literally operating in uncharted waters. There has never been a global QT (quantitative constriction). Think about the choice: As long as this economy is rolling down the rails and inflation is at 7% or 8%, the Fed will raise interest rates. If the first 75 points don’t, they’ll do another 75, and if it doesn’t, they’ll do another 75. At one point, when they first see inflation coming down, they might take a break or make it a small rate hike. One of the lessons from Volcker is, he did it very aggressively. And Volker talked about the fact that he waited too long and then made it worse.

The US Federal Reserve and the ECB are on the same track, but the Bank of Japan has not moved yet. What does this mean for financial markets?

It was also part of my storm clouds. What we do know is that it will lead to massively volatile markets. It is a complete default. It’s a given because every day you wake up you have to ask the same questions. You use today’s data to determine if it’s good, it’s bad, it’s wrong, it’s too high, it’s too low. And it’s going to cause episodes like this. And of course interest rate markets affect all markets. This upheaval I am talking about will cause highly volatile markets as well as closed markets such as the IPO market or the high yield market. It is quite expected that it will continue for some time. There has been no surrender or fear or panic in the markets.


Do you see performance?

The chances of that happening are higher. I hope it doesn’t happen and I’m not predicting it. I just think it’s a possibility and we’re prepared for it. So as a company that serves Indian customers and the Indian government, I need to be as ready as I can to serve my customers. I’m not too worried about volatile markets, we’re used to it and we can deal with it.

Which is the greater threat: inflation or monetary tightening?

I think they are equal threats, but you get used to it and you don’t. I don’t know what the consequences of QT are. And I think in hindsight they would write books about QE for 50 years. And I think people would realize at some point that negative interest rates are a bad idea. But I could be wrong. I don’t know – let the history books write that. But I think it’s the third one that’s much more important. And there is the war in Ukraine. I mean, it’s a humanitarian crisis, it’s nuclear blackmail. People are talking about possible starvation. Winter is not here yet. Oil supplies are inherently precarious. I place that as a much greater risk to humanity than bad markets.

How much of a concern is the China-Taiwan conflict?

It is a black swan event. A war in Taiwan will be devastating to the global economy for many reasons. I think the world has realized after the war in Ukraine that national security comes first. The nuclear issue is dire. And if you look at energy supplies, China and India will look at it and say, what do we need to make sure my country is safe. I think people will restructure trades to make sure they are safer than getting rid of trades. I think some of this around the world is good for India, because as people diversify their supply chains, India should pick up some of that production.

Because of the sanctions, there is a parallel payment system that has developed between Russia and China, and even India and Russia. What does this mean for the US dollar dominated international system?

America should be very careful how it applies financial sanctions. They should only be used for serious reasons and probably in conjunction with allies. I will put Russia in that category. I think if we overdo it, we are giving reasons not to trade with America or bank with America or leave the money in dollars. The reason the dollar is strong is because there is a rule of law. You are free to do what you want with it. In the back of your mind, you’re not worried about the rule of law in America or about a currency collapse because, you know, the Fed is trying to maintain the currency. The payment systems are slightly different because people can find other ways to pay. In the Swift payment system, many banks are connected to each other. We don’t need the Swift payment system for certain items. So, when the US says, okay, you can’t use Swift to pay the oil company, you might find a way to pay them. But if America says if you pay the oil company, we’re going to impose restrictions, that’s a lot harder.

India has done better. How do you see it in a global context?

India should strive to be the fastest growing economy on earth in the next decade. Anything shorter than that goal is not high enough. And the question you should always be asking is, what are we doing to get there? We deserve it. Why aren’t we there?

India has done great things in the last 10 years. Biometric identification to transfer payments with banks. You have a national infrastructure bill that hasn’t started yet. Anything that reduces regulatory burdens – and I’m talking about bureaucratic regulatory burdens – is a good thing. Free competition, stronger financial markets, I hope GIFT City works for you and now you should be a big beneficiary with people who need to move supply chains out of China. You are looking at the world, trying to be a peaceful nation, you are right next to Russia and China, but your best ally in the world in the next 20 years will be America.

When you look at this region – China and India – from America, how does it look proportionally?
You have done a great job. You registered 7% growth this year and 7% last year, I think that is very good. Obviously, China has a lot of problems, but you shouldn’t be happy about it. It’s not good for you. It is not good for us. Some of these issues are solvable. The real estate issue is real, but they have the means to overcome it. They can tell the banks to roll over the loan, finish the building, let the people move in. And I think they’ll do some smart macroeconomic policy to accelerate the growth a little bit. And sometime after President Xi was elected for a third term, I think they would be able to overcome this. I don’t think they are static. I think that over a long period of time, authoritarian control of financial markets will lead to misallocation of capital, corruption, and that will be the problem of the next decade.


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