Interest rates could hit 8% or more and wars are creating outsize geopolitical risks, Jamie Dimon warns

By Ciara Linnane and Steve Gelsi

JPMorgan CEO sees opportunity with AI, and says war in Ukraine and hostilities in Middle East pose risks that could eclipse World War II

Persistent inflationary pressures driven by fiscal deficits and military conflict among other factors may lead to U.S. interest rates of 8% or even more, JPMorgan Chase & Co. Chief Executive Jamie Dimon warned on Monday.

In his annual letter to shareholders-a 61-page missive addressing a swath of global issues as well as reflections on his own bank's performance-Dimon said the market appears to be pricing in a 70% to 80-% chance of a soft landing for the U.S. economy.

"I believe the odds are a lot lower than that," he said.

Dimon has long been more bearish on the economy than many economists, warning in 2022 of a "hurricane" that was about to hit as the Federal Reserve raised interest rates to combat inflation.

JPMorgan Chase stock (JPM) has risen 16% so far in 2024, compared to a 9.1% rise by the S&P 500.

Dimon listed a range of factors that appear to be inflationary, namely "ongoing fiscal spending, remilitarization of the world, restructuring of global trade, capital needs of the new green economy, and possibly higher energy costs in the future (even though there currently is an oversupply of gas and plentiful spare capacity in oil) due to a lack of needed investment in the energy infrastructure," he wrote.

Today's fiscal deficits are greater than those seen in the 1970s and 1980s that were partially driven by the Vietnam War. And they are happening in boom times, not because of recession, supported by quantitative easing by central banks.

"Quantitative easing is a form of increasing the money supply (though it has many offsets). I remain more concerned about quantitative easing than most, and its reversal, which has never been done before at this scale," he wrote.

Turning to the topic of artificial intelligence that has helped drive gains in the stock market, Dimon said the bank created a new position, chief data and analytics officer, in its operating committee.

The bank remains "completely convinced" that AI offers the same "extraordinary" and "transformational" consequences as some of the major inventions from the past few hundred years including the printing press, the steam engine, electricity, computing and the internet.

"Over time, we anticipate that our use of AI has the potential to augment virtually every job, as well as impact our workforce composition," Dimon said. "It may reduce certain job categories or roles, but it may create others as well."

Dimon also said AI poses a security threat from bad actors and that the bank is working to counter these threats and "proactively detect and mitigate" them.

Elsewhere, Dimon called on Americans to put aside the differences that have created a polarized electorate, at a time when the country's global leadership role is being challenged by outsiders.

"We need to find ways to put aside our differences and work in partnership with other Western nations in the name of democracy," he wrote.

Protecting essential freedoms, including free enterprise, "is paramount. We should remember that America, "conceived in liberty and dedicated to the proposition that all men are created equal," still remains a shining beacon of hope to citizens around the world," he said.

Taking a broader geopolitical view, Dimon warned that recent events, including Russia's invasion of Ukraine and the violence in the Middle East, "may very well be creating risks that could eclipse anything since World War II-we should not take them lightly."

America and the rest of the free Western world can no longer rely on the false sense of security that dictatorships and oppressive nations won't use their economic and military powers to advance their agendas, "particularly against what they perceive as weak, incompetent and disorganized Western democracies. In a troubled world, we are reminded that national security is and always will be paramount, even if its importance seems to recede in tranquil times."

Dimon said the shrinking public markets are a concern, noting that U.S. public companies now total 4,300, down from their peak at 7,300 in 1996.

At the same time, the number of companies owned by private-equity firms, not including those owned by sovereign-wealth funds and family offices, has grown to 11,200 from 1,900.

"This trend is serious and may very well increase with more regulation and litigation coming. Along with a frank assessment of the regulation landscape, we really need to consider: Is this the outcome we want?" he asked.

The reasons that companies are fleeing public markets are complex, and likely include such factors as intensified reporting requirements, higher litigation expenses, regulations, cookie-cutter board governance, shareholder activism, less flexibility on compensation, heightened public scrutiny and the pressure of quarterly earnings, he said.

"The governance of major corporations is evolving away from guidance by governance principles that focus on a company's relationship to long-term economic value toward a bureaucratic compliance exercise. Good corporate governance is critical, and a little common sense would go a long way," he wrote.

Dimon's total pay package for 2023 rose by about $250,000 to $35.1 million from $34.85 million in 2022. He earned $84.43 million in 2021 due to a one-time deferred bonus of $52.62 million if he says on as chief executive for five more years. Breaking out that bonus, Dimon earned about $31.8 million in 2021.

J.P. Morgan (JPM) will report its first-quarter earnings on Friday.

Also read: Jamie Dimon gets $1.5M raise and heaps of praise after JPMorgan Chase's record profit

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-Ciara Linnane -Steve Gelsi

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04-09-24 0720ET

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