Andrew Harrer | Bloomberg | Getty Images The risk of the US Federal Reserve accidentally leading the US economy into recession as it fights inflation is growing, according to JPMorgan Chase CEO Jamie Dimon. The CEO of the largest US bank in assets said on Wednesday that economic growth will continue at least in the second and third quarters of this year, fueled by consumers and businesses that launder cash and pay off debts on time. “After that, it’s hard to predict. You have two other very big hedging factors that you are all fully aware of,” Dimon told analysts, citing inflation and the tightening or reversal of Fed bond market policies. “You have never seen this before. I just point out that these are storm clouds on the horizon that may or may not disappear.” Dimon’s observations show how quickly important events can change the economic landscape. A year ago, he said, the United States was enjoying an economic “golden moment” of high growth combined with manageable inflation that could last until 2023. But stubbornly high inflation and a number of possible consequences of Russia’s invasion of Ukraine have blur this image. The risks came on Wednesday, when JPMorgan saw a 42% drop in profits from a year earlier due to rising costs for bad loans and the market turmoil caused by the war in Ukraine. In particular, the bank raised $ 902 million in loan loss reserves, a sharp reversal from a year earlier when it released $ 5.2 billion in reserves. JPMorgan made the move – unusual because executives said borrowers of all income levels were still paying their bills – as the chances of a “Fed-induced” recession increased, according to CFO Jeremy Barnum. In the past, the Fed has raised interest rates to the point where the US economy is shrinking. Last month, the Fed raised its key interest rate and said there could be increases in each of the other six sessions this year. Bank shares have been hit hard this year, despite rising interest rates, which tend to improve their lending margins. This is due to the fact that parts of the yield curve have flattened and even reversed this year, which is a sign of a possible recession in the future. JPMorgan executives made it clear they did not anticipate a recession. but this high inflation, exacerbated by the effects of the war in Ukraine and Covid, and the Fed’s actions have made it more likely than before. Managers need to research a variety of hypothetical, probabilistic-weighted scenarios to judge how much reserves they will have available. “These are very strong forces and these things are going to clash at some point, probably sometime next year,” Dimon told a news conference. “And no one really knows what is going to happen, so I do not predict a recession. But you know, is it possible? Absolutely.” In the event of a recession, the bank “will have to put in a lot more” for loan loss reserves, Dimon told reporters. Shares of JPMorgan fell 3.4% on Wednesday and at some point reached a 52-week low. “Wars have unpredictable consequences, you have already seen it in the oil markets. Oil markets are precarious,” Dimon said. “I hope all of this disappears and goes away; we have a gentle landing and the war is over, okay. I just would not bet on all of that.”
