Jamie Dimon warns markets are fooling themselves by thinking inflation will soon go away

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JPMorgan CEO Jamie Dimon worries exuberant investors are running ahead of themselves due to what he called “a lot of happy talk”, forgetting pricing pressures that have yet to manifest but are already in the pipeline.

Equity markets hit fresh highs this week, with the Dow Jones breaking above 40,000 points for the first time after data suggested inflation is cooling down, opening the door to stimulative interest rate cuts by the Federal Reserve.

After two straight months of prices rising by 0.4% over the previous four-week period, April edged lower to 0.3% with broad declines across the board save for stickier prints for housing and gasoline, according to the Bureau of Labor Statistics.

Dimon, however, believes the data do not yet reflect underlying effects from broader trends.

“There are a lot of inflationary forces in front of us,” said the CEO of the world’s most valuable bank, in an interview with Bloomberg Television on Thursday. “The chance of inflation staying high or rates going up are higher than people think.” 

The JPMorgan boss cited costs related to transitioning the economy to circular sustainability and infrastructure spending to make it more productive—would put upwards pressure on prices.

Increased government outlays to service the national debt and boost military capability were likewise risks affecting the inflation outlook, not to mention trade disputes.

Earlier this week the Biden administration quadrupled import duties on Chinese EVs as part of an overall package of higher tariffs to protect American jobs in the manufacturing sector ahead of the November election.

Since businesses can rarely digest these costs, they are typically passed on to the consumer through higher prices.

Should these various effects combine to keep inflation elevated, the Fed may have little choice but to maintain interest rates at their current high levels.

If they are then paired with sluggish growth, Dimon predicts economic sectors with weak balance sheets will soon find themselves in trouble.

He cited real estate, leveraged companies and private credit as potential sources of volatility.

“Whatever the world is pricing in for a soft landing, I think it’s probably half of that,” Dimon said, calling equity valuations not just high but very high.

“I think the chances of something going wrong are higher than people think.”

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