A booming job market, softening inflation, strong growth — the economy is strong by any measure, but the chief executive of the nation's largest bank worries the U.S. remains on the brink of an economic downturn. .
JPMorgan Chase & Co. CEO Jamie Dimon on Monday issued a sobering economic forecast in his annual shareholder letter, saying high inflation proved more stubborn than expected and the Federal Reserve He warned that the board could raise interest rates and ultimately trigger a recession.
The billionaire investor also expressed a comprehensive assessment of artificial intelligence and weighed in on the ongoing debate over diversity, equity, and inclusion.
Here are four takeaways from Dimon's annual shareholder letter.
1. Sticky inflation
Mr. Dimon acknowledged the recent strong economic performance but warned of long-term trends that could erode gains. He expressed special vigilance about inflation, the economy's biggest threat.
Inflation has fallen significantly from its peak of 9.1%, but remains more than a percentage point above the Fed's target rate of 2%.
Dimon said a number of factors, including government spending and global trade shocks, could make the final stage of bringing inflation down to normal levels much more difficult than many observers expected. .
He added that other trends, such as escalating military conflicts and the financing needed to transition to a climate-friendly economy, are keeping inflation high.
Dimon said the risks posed by ongoing inflation jeopardize efforts to achieve a “soft landing” in which the economy returns to normal levels while avoiding recession.
“These markets appear to be pricing in a 70-80% chance of a soft landing,” he added. “I think the odds are much lower than that.”
2. Interest rates may rise
The Fed has been forecasting a series of highly anticipated interest rate cuts in recent months. In fact, central banks may end up doing the opposite, Dimon said.
The federal funds rate is 5.25% to 5.5%, tied for the highest level since 2001.
Dimon said interest rates could spike above 8% in response to potentially stubborn inflation.
Raising interest rates could increase borrowing costs for consumers and businesses and slow economic activity through weaker household spending and business investment.
Dimon warned that the ensuing economic stagnation could push the U.S. into recession.
A potential interest rate spike could pose a broader threat than the crisis that hit Silicon Valley Bank and other regional banks last year, Dimon added.
“Although the mini-banking crisis in 2023 is over, we want you to be careful about rising interest rates and a recession, not just for banks but for the entire economy,” Dimon said.
3. Artificial intelligence could eventually become as important as the printing press
Dimon said JPMorgan Chase uses artificial intelligence in about 400 different ways, and the technology is a breakthrough on a scale comparable to some of humanity's most influential inventions. It was advertised that there was.
“While we do not know the full effectiveness or exact speed with which AI will change our business, or how it will impact society as a whole, the results will be extraordinary and will likely be the same for major companies. “I have full confidence that it will be as transformative as some of the technological inventions of the past few hundred years, especially the printing press, the steam engine, electricity, computing, and the Internet,” Dimon said. Ta.
The stock market has been rising since the beginning of last year, largely due to a group of big technology companies driven by enthusiasm for AI.
Shares of California-based Nvidia, which is fueling the AI ​​boom and selling most of its chips, have risen nearly 500% since the beginning of 2023. Shares of Microsoft, co-owner of ChatGPT maker OpenAI, rose about 75%. over that period.
Meanwhile, JPMorgan Chase is investing heavily in the technology, hiring about 2,000 machine learning experts and data scientists and exploring ways to incorporate the technology into everything the company does, Dimon said. he said.
4. Supporting diversity, equity, and inclusion
Diversity, equity, and inclusion programs have become lightning rods, sparking controversy in state capitals and corporate boardrooms.
In one section of his letter, Dimon emphasized the importance of DEI and outlined several of the bank's initiatives aimed at supporting employees and customers who belong to marginalized groups.
Dimon touted an internal affinity group dedicated to bringing together employees of different identities, including Black and LGBTQ+ employees. She also promoted an internal program called “Women on the Move,” which seeks to advance the careers of female employees.
In 2020, JPMorgan Chase pledged to spend $30 billion over five years to close the racial wealth gap. Mr. Dimon said the company is nearly complete with this effort and announced that JPMorgan Chase will continue the program as part of normal business operations.
“I believe that businesses, especially banks, must earn the trust of the communities and countries in which they operate,” Dimon said.