Jamie Dimon, the long-serving chief executive of JPMorgan Chase, has warned that increased government spending could result in stickier-than-expected inflation and higher interest rates in the US.
The banker, who has run JPMorgan since 2005, said in his annual letter to shareholders on Monday that despite an “unsettling landscape”, including last year’s US regional banking crisis, the US economy remained “resilient, with consumers still spending, and the markets currently expect a soft landing”.
“It is important to note that the economy is being fueled by large amounts of government deficit spending and past stimulus,” he added.
“There is also a growing need for increased spending as we continue transitioning to a greener economy, restructuring global supply chains, boosting military expenditure and battling rising healthcare costs. This may lead to stickier inflation and higher rates than markets expect.”
His comments come as markets have recently trimmed their bets on how many times the US Federal Reserve will lower interest rates this year, to three from six. The central bank’s federal funds rate currently stands at a 23-year high of 5.25 to 5.50 per cent.
US inflation overshot expectations in both January and February, and the Fed recently revised up its inflation forecasts for next year. Since its last meeting in March, some Fed officials have warned that they want to see further progress on inflation before cutting rates.
Dimon, who could earn some $50m if he stays with JPMorgan until 2026, has led the firm to become by far America’s most profitable bank and the world’s largest bank by market capitalisation.
He said in his 61-page letter that artificial intelligence “may well be” the most important issue facing JPMorgan, adding that the bank was “completely convinced the consequences will be extraordinary and possibly as transformational as some of the major technological inventions of the past several hundred years”.
Dimon also criticised “the spiraling frivolousness of the annual shareholder meeting” and said it had “devolved into mostly a showcase of grandstanding and competing special interest groups”.
He noted the “undue influence” of the US’ two largest proxy advisors – Glass Lewis and Institutional Shareholder Services (ISS) – and questioned “whether American corporate governance should be determined by for-profit international institutions that may have their own strong feelings about what constitutes good corporate governance”.
Dimon also drew attention to the surge in private credit, warning that “problems in the private credit market caused by the bad players can leak onto the good ones” and could make the product an “unexpected risk in the markets”.
“It’s a reasonable assumption that at some point regulations will focus on the private markets as they do on the public markets,” he added.
Dimon’s annual letter is widely read within the industry and reflects his reputation for speaking out on a range of social, political and economic issues, as well as business.
He said that recent geopolitical tension and conflict “may very well be creating risks that could eclipse anything since World War II”.
“The fallout from these events should also lay to rest the idea that America can stand alone,” Dimon added. “Only America has the full capability to lead and coalesce the Western world, though we must do so respectfully and in partnership with our allies.”
Dimon has repeatedly played down speculation that he might run for the US presidency but has hinted that he would be open to serving in someone else’s administration. He describes himself as a Democrat but has said his views have become less aligned with the party in recent years.