JPMorgan Chase CEO warns of potential economic recession and higher interest rates, while expressing confidence in the banking system’s resilience.
In an exclusive interview with CNN’s Poppy Harlow on Thursday, JPMorgan Chase CEO Jamie Dimon stated that the recent collapse of Silicon Valley Bank and Signature Bank has raised the likelihood of an economic recession due to the resulting banking crisis.
During his first interview following the collapse of SVB, Dimon noted that despite the strength and soundness of the banking system, the recent turbulence in the financial sector adds another factor that contributes to the likelihood of an economic recession.
“We are seeing people reduce lending a little bit, cut back a little bit and pull back a little bit.” While the banking chaos won’t “necessarily force a recession,” he said, “it is recessionary.”
Dimon warns of potential economic turbulence ahead, citing the Federal Reserve’s current tightening measures, persistent inflation, and the ongoing conflict between Russia and Ukraine as the biggest threats.
However, he expresses optimism about the country’s robust human capital.
Dimon expressed his support for local entrepreneurship, stating, “I’m a red-blooded, full-throated, free-market, free-enterprise capitalist.”
“I think we should applaud free enterprise and we should sing from the hills the benefits while we fix the negatives, as opposed to denigrate the whole thing.”
The strategic Importance of Community Banks
Dimon spoke to Harlow after the inauguration of Chase’s community branch in Atlanta.
The new Atlanta branch is the 16th of its kind, where Chase collaborates with local communities to organize free events, financial health workshops, and skills training for the residents. Additionally, community branches offer storefront spaces for small business pop-ups.
According to Dimon, the community branches established by Chase are not a form of charity, but a smart business move.
“We need to get money into local communities,” he said. “A lot of us had moms and dads who took us to open our first accounts,” he said.
“And then you see your money go from like $84.75 to $85.17. It was like magic, that interest,” he added.
As a part of this effort, Chase has employed several community managers specifically to encourage those who are hesitant to enter a bank and educate them about their financial matters.
Dimon emphasized the importance of the community manager role, which is typically filled by regional and mid-sized community banks.
He noted that the recent collapses of SVB and Signature, and the potential for contagion, have made this role even more crucial.
Meltdown in the Banking Sector
Dimon expressed uncertainty about the current banking crisis and whether the US economy has fully recovered from it yet.
“I’m hoping it will resolve, you know, rather shortly,” he said.
According to Dimon, it is unclear whether more banks will fail in the current year, but he emphasized that the current economic recession and financial turmoil is not comparable to the global financial crisis of 2008, which involved hundreds of institutions worldwide with excessive leverage.
Dimon noted that the current banking crisis is not similar to the mortgage market crisis of 2008, which involved numerous institutions with high leverage.
He stated that there are no major issues in the mortgage markets today and urged the public not to view the current situation as such.
Dimon believes that it is acceptable for some banks to fail, and that failure is a natural part of business.
However, he emphasized the need to avoid a domino effect of failures.
Dimon cautioned that regional banks and American consumers should brace themselves for longer periods of higher interest rates.
“I don’t know if it’s going to happen, but be prepared for that tide.”
According to Dimon, it’s probable that interest rates will stay elevated for a more extended period, and banks with Treasury investments need to brace themselves for that likelihood.
Lawmakers have become increasingly concerned about rising the debt ceiling, which is the $31.38 trillion borrowing limit set in January.
If new legislation is not passed, experts predict that the US government could default on its debts during the summer or in early September.
However, negotiations between House Republicans and the White House are at a standstill.
Dimon, who has been collaborating with the White House and Congress this year on various economic issues, told Harlow that there would be no default while he was in charge.
Dimon hopes Congress will reach a consensus on the debt ceiling in the coming months, but says there might be more economic difficulties before an accord is reached.
“You’ll feel the pain before it happens,” he said of breaching the debt ceiling. As a potential default comes closer “you’ll see it in the markets and that will scare people,” he said.
Trump’s 2024 campaign
Dimon served on former President Donald Trump’s business council, and he says he doesn’t think that Trump’s indictment and the criminal charges he faces this week will affect the economy.
However, Dimon thinks that Trump implemented some good economic policies during his time in office.
In particular, he noted that tax reforms introduced by Trump brought a trillion dollars back to America.
Dimon also said that the Black community had the lowest unemployment rate ever in Trump’s last year, which he believes was due to the growth of the economy.
Dimon also made remarks about a potential Republican presidential candidate for 2024, Florida Governor Ron DeSantis.
Last year, a bill was passed in Florida that aimed to restrict the discussion of LGBTQ issues in the state’s schools, which opponents dubbed the “Don’t Say Gay” law.
Disney raised objections against this law, leading the state of Florida to reduce some of Disney’s powers regarding the land that encompasses and surrounds Disney World.
Bob Iger, the CEO of Disney, criticized the law and the actions of Governor Ron DeSantis, calling them “anti-business.”
On Thursday, Dimon affirmed that they will continue to strongly and proactively support the LGBT community, even in the face of DeSantis’ policies.