JP Morgan CEO Jamie Dimon believes too much attention is being placed on US Fed’s rate cut’s size, which he views as largely inconsequential. In an interview with TOI, Dimon said inflation and hard-landing risks persist. Excerpts.
Exactly a year ago, you spoke about the risks of interest rates rising to 7% and recession. Do you think something went right as rates did not go up and recession was averted?
As a businessperson, you should be prepared for various scenarios.You can’t just assume that the expected scenario will happen. I still think there’s a chance rates could stay higher for longer. I’m talking about the 10-year rate, which is 3.8%, but could it go up? Yes. Could company borrowing costs rise due to credit spreads? Yes. So, as a business, you prepare for various outcomes. So far, it looks like we’re heading for a soft landing, but you’ll only know when it’s over.
Do you think the 50bps rate cut signifies that the risk of a downturn is higher? How do you see rate cuts playing out on the dollar?
Some people speculate that they made the cut because they’re more worried about a downturn, but I don’t know. You’ll have to ask them. What we want is a strong economy. If they’re reducing rates to keep the economy strong, that would be good for the dollar. If there’s a recession, that’s a whole different scenario. I can’t predict the future. I’m hoping it’s okay, but a year from now, you’ll be telling me what happened. I don’t know, you don’t know, and (Jerome) Powell (Fed chief) doesn’t know.
Do you think the Fed will succeed in managing a soft landing?
If you look at stock and bond markets, credit default spreads seem to be pricing in a 70-80% chance of a soft landing. I think the odds are lower than that. I’m a bit more sceptical due to the extremely complex geopolitical situation and extreme fiscal spending globally. It seems to have had no consequences yet, but I hope the soft landing happens.
Do you see inflation risks continuing?
They’re coming down, but when I look at the future environment, certain things are almost guaranteed – more military spending worldwide, the cost of transitioning to a green economy, restructuring trade, ongoing fiscal deficits, and an ageing population. All of these are inflationary. It seems likely inflation could tick up over time. A recession would reduce it, while a boom would increase it. But those factors will still be there.
Post-pandemic, geopolitical risks seem to have increased. What does this mean for globalisation?
The world is complex, and while China has become a big country, the concerning events are the war involving Russia and ongoing military action in the Middle East. China isn’t involved in these conflicts but isn’t aligned with the US either, which makes the situation more difficult. I don’t think globalisation will disappear. You can come up with a schematic dividing the world into two major trading blocs, but that’s not in anyone’s interest, and it would take a long time. Instead, you’re likely to see a restructuring of trade for national security reasons.
Every country has different interests – India needs oil, America doesn’t. So, each country will secure what it needs. For the US, that includes pharmaceutical ingredients and rare earths.
The second restructuring will focus on fair trade. Some countries use state-owned enterprises to dominate global trade, and that is a beggar-thy-neighbour approach. I think countries will become more sensitive to what’s fair.
What is the future for banking jobs with the rise of digital tech and AI?
Digital technology has been around for a long time, and jobs have increased, not decreased. While certain types of jobs may be reduced, others will change. In our branches, we have more advisers and fewer in operational and teller roles. There’s more in wealth management, small business banking, mortgages, etc. AI will make jobs more productive and, in the short term, create new jobs. In fact, we’re hiring more people in AI and data science.
Any plans for retail banking in India?
I’ve always said no to a physical bank. If Chase came here, there’s no real reason for you to bank with us. You don’t know us, and there are very capable banks already here. Plus, we’d need to build a whole infrastructure – legal, risk, credit, compliance, audit systems. However, our Chase brand is building a digital-only bank somewhat successfully in the UK. We plan to roll it out in another country next year. If it’s successful, it could expand into Europe, and eventually into Asia. But that’s still many years away.
What are the lessons from last year’s banking crisis?
The banks had two problems, and they were isolated to a handful of institutions. One was very concentrated deposits. Think of venture capital companies controlling many corporate accounts and asking them to move their money all at once. That was a new problem – billions of dollars left Silicon Valley Bank, and similar amounts at First Republic in days. The other issue was interest rate exposure, which was reported, isolated and transparent to both boards and regulators, but they took on too much of it, and it shouldn’t have been allowed. That was a lesson for everyone. When First Republic failed, we knew it would be the last domino because of those issues. But, I was careful as this was provided we don’t have a recession, and we had higher rates which put stress on some banks and leveraged companies.
Regulators are re-examining liquidity and deposit cover requirements…
The movement of money electronically isn’t new. The internet has been around for a long time, but banks didn’t experience those kinds of runs before. Banks had certain problems, but they had a diversified clientele, which is why they didn’t face the issues First Republic did.
Exactly a year ago, you spoke about the risks of interest rates rising to 7% and recession. Do you think something went right as rates did not go up and recession was averted?
As a businessperson, you should be prepared for various scenarios.You can’t just assume that the expected scenario will happen. I still think there’s a chance rates could stay higher for longer. I’m talking about the 10-year rate, which is 3.8%, but could it go up? Yes. Could company borrowing costs rise due to credit spreads? Yes. So, as a business, you prepare for various outcomes. So far, it looks like we’re heading for a soft landing, but you’ll only know when it’s over.
Do you think the 50bps rate cut signifies that the risk of a downturn is higher? How do you see rate cuts playing out on the dollar?
Some people speculate that they made the cut because they’re more worried about a downturn, but I don’t know. You’ll have to ask them. What we want is a strong economy. If they’re reducing rates to keep the economy strong, that would be good for the dollar. If there’s a recession, that’s a whole different scenario. I can’t predict the future. I’m hoping it’s okay, but a year from now, you’ll be telling me what happened. I don’t know, you don’t know, and (Jerome) Powell (Fed chief) doesn’t know.
Do you think the Fed will succeed in managing a soft landing?
If you look at stock and bond markets, credit default spreads seem to be pricing in a 70-80% chance of a soft landing. I think the odds are lower than that. I’m a bit more sceptical due to the extremely complex geopolitical situation and extreme fiscal spending globally. It seems to have had no consequences yet, but I hope the soft landing happens.
Do you see inflation risks continuing?
They’re coming down, but when I look at the future environment, certain things are almost guaranteed – more military spending worldwide, the cost of transitioning to a green economy, restructuring trade, ongoing fiscal deficits, and an ageing population. All of these are inflationary. It seems likely inflation could tick up over time. A recession would reduce it, while a boom would increase it. But those factors will still be there.
Post-pandemic, geopolitical risks seem to have increased. What does this mean for globalisation?
The world is complex, and while China has become a big country, the concerning events are the war involving Russia and ongoing military action in the Middle East. China isn’t involved in these conflicts but isn’t aligned with the US either, which makes the situation more difficult. I don’t think globalisation will disappear. You can come up with a schematic dividing the world into two major trading blocs, but that’s not in anyone’s interest, and it would take a long time. Instead, you’re likely to see a restructuring of trade for national security reasons.
Every country has different interests – India needs oil, America doesn’t. So, each country will secure what it needs. For the US, that includes pharmaceutical ingredients and rare earths.
The second restructuring will focus on fair trade. Some countries use state-owned enterprises to dominate global trade, and that is a beggar-thy-neighbour approach. I think countries will become more sensitive to what’s fair.
What is the future for banking jobs with the rise of digital tech and AI?
Digital technology has been around for a long time, and jobs have increased, not decreased. While certain types of jobs may be reduced, others will change. In our branches, we have more advisers and fewer in operational and teller roles. There’s more in wealth management, small business banking, mortgages, etc. AI will make jobs more productive and, in the short term, create new jobs. In fact, we’re hiring more people in AI and data science.
Any plans for retail banking in India?
I’ve always said no to a physical bank. If Chase came here, there’s no real reason for you to bank with us. You don’t know us, and there are very capable banks already here. Plus, we’d need to build a whole infrastructure – legal, risk, credit, compliance, audit systems. However, our Chase brand is building a digital-only bank somewhat successfully in the UK. We plan to roll it out in another country next year. If it’s successful, it could expand into Europe, and eventually into Asia. But that’s still many years away.
What are the lessons from last year’s banking crisis?
The banks had two problems, and they were isolated to a handful of institutions. One was very concentrated deposits. Think of venture capital companies controlling many corporate accounts and asking them to move their money all at once. That was a new problem – billions of dollars left Silicon Valley Bank, and similar amounts at First Republic in days. The other issue was interest rate exposure, which was reported, isolated and transparent to both boards and regulators, but they took on too much of it, and it shouldn’t have been allowed. That was a lesson for everyone. When First Republic failed, we knew it would be the last domino because of those issues. But, I was careful as this was provided we don’t have a recession, and we had higher rates which put stress on some banks and leveraged companies.
Regulators are re-examining liquidity and deposit cover requirements…
The movement of money electronically isn’t new. The internet has been around for a long time, but banks didn’t experience those kinds of runs before. Banks had certain problems, but they had a diversified clientele, which is why they didn’t face the issues First Republic did.
