Beauty finger be careful! JPMorgan warns of 'dark clouds' on U.S. economy later this year

JPMorgan Chase CEO Jamie Dimon said the risk of the Federal Reserve accidentally pushing the U.S. economy into a recession as it fights inflation is rising .

The U.S. economy will continue to grow at least through the second and third quarters of this year, driven by cash-rich consumers and businesses that are paying their debts on time, the CEO of the largest U.S. bank by assets said on Wednesday. "It's hard to predict after that," he said. There are also two very large offsetting factors, you all know full well, referring to inflation and quantitative tightening, or the reversal of the Fed's bond-buying policy. You've never seen it before, I Just wanted to point out that those dark clouds on the horizon may or may not be gone."

Dimon's words show how quickly major events can change the economic landscape. A year ago, he said the U.S. was enjoying an economic Goldilocks moment of high growth and manageable inflation, which could continue into 2023. But stubbornly high inflation and the possible ramifications of Russia's invasion of Ukraine have overshadowed the situation.



Those risks came to light on Wednesday, when JPMorgan reported a 42% drop in profit from a year earlier, due to higher costs of non-performing loans and market turmoil caused by the war in Ukraine . Specifically, the bank booked a loan-loss provision of $902 million, a sharp change from a year ago, when it released $5.2 billion in reserves .

JPMorgan's move -- unusual because executives say borrowers at all income levels are still paying their bills -- increases the likelihood of a Fed-induced recession , JPMorgan Chief Financial Officer Jeremy Barnum said. . In the past, the Federal Reserve has raised interest rates to the point where it has caused the U.S. economy to shrink. Last month, the Fed raised its benchmark interest rate and said it is likely to raise rates at the remaining six meetings this year.

Bank stocks have been hit hard this year, even though rising interest rates tend to boost banks' loan margins. That's because parts of the yield curve have flattened or even inverted this year, a closely watched sign that a recession could be ahead .

JPMorgan executives have made it clear they don't expect a recession. But the effects of the war in Ukraine and the pandemic have exacerbated high inflation, combined with the actions of the Federal Reserve, making that more likely than ever . Managers must investigate various hypothetical, probability-weighted scenarios to determine how much reserves need to be set aside.

"These are very powerful forces, and they're going to collide at some point, probably sometime next year," Dimon said. "Actually, no one knows what the outcome will be, so I'm not predicting a recession. But is it possible? Absolutely. "

If the economy does slip into a recession, JPMorgan will have to set aside more loan-loss provisions, he said. JPMorgan shares fell 3.2% on Wednesday, hitting a 52-week low.

"The outcome of the war is unpredictable, you've seen it in the oil market, the oil market is unstable. I hope these things go away, get away, and we have a soft landing and the war is resolved. I just wouldn't be on the fence about all of that. Bet."



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GMT+8 at 14:09 on April 14, the US dollar index is at 99.62