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JPMorgan CEO Jamie Dimon says the US banking turmoil isn’t over, warns of repercussions for years to come, and lifts odds of a recession

jamie dimonJPMorgan Chase CEO Jamie Dimon speaks at the North America’s Building Trades Unions (NABTU) 2019 legislative conference in Washington.

Jeenah Moon/Reuters

  • JPMorgan CEO Jamie Dimon reflected on the US banking turmoil, recession fears and the Fed’s policy in an annual letter to shareholders.
  • “The current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come,” he wrote. 
  • The Wall Street lender’s chairman said the Fed is likely to keep raising interest rates despite stress in the banking system. 

JPMorgan CEO Jamie Dimon weighed in on the US banking turmoil and what it means for the economy in a letter to shareholders released on Tuesday. 

“The current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come,” Dimon wrote in a 43-page annual message that covers a range of topics from the Wall Street bank’s performance and artificial intelligence to geopolitics and regulation in the banking sector. 

“It has provoked lots of jitters in the market and will clearly cause some tightening of financial conditions as banks and other lenders become more conservative,” Dimon said, adding it is unclear when the current uncertainties in the banking system will end. 

Dimon, however, stressed that the recent shocks to the banking industry are nothing like the 2008 financial crisis. 

Investors have been on edge in recent weeks after the stunning downfall of Silicon Valley Bank (SVB) – the biggest bank failure since 2008 – which was quickly followed by the collapse of Signature Bank. It’s led to fears of financial contagion – specifically, that the fallout from SVB’s crash could spread to smaller, regional US banks.

According to Dimon, most of the risks to the current disruption in the US banking system were “hiding in plain sight.” That includes SVB’s exposure to interest-rate increases, which led to huge losses on its bond portfolio. 

Meanwhile, financial institutions including JPMorgan and Allianz have predicted the US economy will tip into a recession as the banking turmoil makes lenders more risk-averse, potentially sparking a credit crunch. 

Dimon reinforced those views, saying he’s placed higher odds than the market that the US will experience an economic slump. 

The economy is facing “storm clouds ahead,” he wrote, underscoring “potential trouble brewing from unprecedented fiscal spending, quantitative tightening and geopolitical tension.” 

Also, Dimon sees interest rates rising further should inflation continue to stay above the Federal Reserve’s 2% target. “If we have higher inflation for longer, the Fed may be forced to increase rates higher than people expect despite the recent bank crisis,” he said.

Consumer prices in the US climbed at an annual pace of 6% in February. The Fed has lifted its benchmark rates to as high as 5% from almost zero 12 months ago – the steepest jump in US borrowing costs since the 1980s – as it tries to curb consumer-price pressures.

Read the original article on Business Insider
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