Jamie Dimon, CEO of investment banking giant JPMorgan, said the global economy may not be prepared to face a worst-case scenario of US interest rates rising as much as 7% with stagflation. Bloomberg reported on Tuesday.
Since March 2022, the US Federal Reserve has raised its benchmark borrowing cost by 525 basis points to a range of 5.25% to 5.5% to curb inflation. The so-called liquidity tightening cycle was partly responsible for the collapse of the cryptocurrency market last year.
According to Dimon, the Fed may have to continue raising interest rates to curb persistent inflation, and the imminent rise in the cost of borrowing is likely to be more damaging to the global economy.
“Going from zero to 2% was almost no increase,” Dimon said during an interview with the Times of India. “Going from zero to 5% surprised some people, but no one would have taken 5% out of the realm of possibility.” India. “I’m not sure if the world is ready for 7%.”
“If they have lower volumes and higher interest rates, there will be stress in the system,” Dimon added.
Rates at 7% with stagflation or persistent high inflation and unemployment would increase the risk of the US economy falling into recession, an undesirable outcome for risky assets like technology stocks and cryptocurrencies. Moreover, continued tightening would push already high US Treasury yields to multi-decade highs. Bonds actually look more attractive since 2009, threatening to drain capital from risky investments.
Dimon’s comments contradict the prevailing view that the Fed’s tightening cycle has peaked. The central bank said it intends to keep borrowing costs high for a longer period.
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