Jamie Dimon, CEO of JPMorgan Chase, believes that the likelihood of the US economy heading towards recession is greater than 50%, but he believes there will be no systemic issues.
At the JPMorgan High Yield and Leveraged Finance Conference held in Miami on Monday, the head of the largest US bank by assets said that the market may not have fully considered the possibility of interest rates remaining high for a longer period of time.
Damon pointed out that "there are some things that are worrying," and he disagrees with the high probability that the economy will not experience a recession. He said, "The market to some extent reflects a soft landing, which is likely to occur."
At the time of the above statement, the market indeed had to reprice its expectations for monetary policy. Earlier this year, futures traders believed that the Federal Reserve was highly likely to begin a significant interest rate cut from March, but now they believe that loose policy will not begin until June or July, and the market has already digested the expectation of three rate cuts - only half of what was previously expected.
At the same time as interest rates rise, the market also has to cope with the Federal Reserve's reduction in bond holdings, a process known as quantitative tightening. Although the Federal Reserve is expected to begin reducing the plan soon, it is still another factor contributing to the tightening of monetary policy.
"It's always wrong to just look at the year," Damon said. "All the factors we are talking about: QT, fiscal deficit, geopolitical events, these things may last for many years. But they will come into play, they will have an impact, and in my opinion, I am very cautious about everything."
However, Damon stated that he does not expect other severe recessions facing the US economy to repeat, such as the 2008 financial crisis, when banks were hit by the collapse of the subprime mortgage industry and the Wall Street stock market plummeted.
Damon said that high interest rates combined with an economic recession may seriously hit sectors such as commercial real estate and regional banks, but the impact on the macroeconomy is limited.