Jamie Dimon, Chairman and CEO of JP Morgan Chase & Co (NYSE: JPM), and the longest-serving executive on Wall Street, says he sees "a hurricane" on the horizon for the U.S. economy. Dimon told investors and analysts at a June 1 financial conference in New York that the biggest bank in the country will begin preparing for an economic disaster.
"You'd better brace yourself," Dimon said at the conference. "JPMorgan is bracing ourselves and we're going to be very conservative with our balance sheet."
At the bank's investor day in May, Dimon had said that he saw "storm clouds" coming for the economy, but his concerns surrounding the Federal Reserve and Ukraine invasion have worsened his forecast.
"You know, I said there's storm clouds but I'm going to change it ... it's a hurricane," Dimon said on Wednesday. "Right now, it's kind of sunny, things are doing fine. Everyone thinks the Fed can handle this. That hurricane is right out there down the road coming our way. We just don't know if it's a minor one or Superstorm Sandy."
Inflation in the U.S. is running rampant, and the Federal Reserve has been attempting to combat it. Meanwhile, investors have felt the burn, and stock prices have been falling.
In May, the Federal Reserve increased interest rates by a half percent, the biggest interest rate hike in more than twenty years. Fed Chairman Jerome Powell told reporters at the time that he thinks there's a "good chance" that the Fed can stabilize prices without causing a recession.
However, interest rate hikes aren't Dimon's concern with the Fed. Starting this month, the central bank will begin carrying out so-called "quantitative tightening" (QT). The bank will reduce its asset portfolio by $95 billion in June as a way to bring down the amount of money currently circulating in the economy.
"I don't think we know the impacts of QT just yet, especially since we haven't done this slimming down of the balance sheet much in history," Dan Eye, chief investment officer for Fort Pitt Capital Group told MarketWatch. "But it's a safe bet to say that it pulls liquidity out of the market, and it's reasonable to think that as liquidity is pulled out, it affects multiples in valuations to some degree."
QT is basically the opposite of quantitative easing, and it could be a blow to investor interest in stocks.
"We've never had QT like this, so you're looking at something you could be writing history books on for 50 years," Dimon said.
Dimon added that the Fed doesn't "have a choice [about QT] because there's too much liquidity in the system. They have to remove some of the liquidity to stop the speculation, reduce home prices and stuff like that."
Along with the Fed's ability to avoid recession, Dimon is also worried about the potential economic impacts of the conflict in Ukraine. Specifically, the bank executive says he's worried about how the war could affect the price of commodities like food and energy.
"Wars go bad, [they] go south in unintended consequences," Dimon said at the conference. "We're not taking the proper actions to protect Europe from what's going to happen to oil in the short run."
Dimon said that JP Morgan will be taking action to protect itself from these economic risks.
"With all this capital uncertainty, we're going to have to take actions. I kind of want to shed nonoperating deposits again, which we can do in size, to protect ourselves so we can serve clients in bad times," Dimon said. "That's the environment we're dealing with."
In addition to his fears for the future of the economy, Dimon also ranted on a variety of other topics, from "woke" culture to his shareholders.
Recently, JP Morgan shareholders voted two to one to reject a $52.6 million award that the company had given to Dimon for his work in 2021. For eight of the last twelve years, JP Morgan's pay packages have received 90% approval from shareholders.
"Shame on you if that's how you vote. Seriously, you should be embarrassed. Do your own homework," Dimon said, referring to the recommendation from proxy advisory firm Glass Lewis & Co.'s that shareholders reject the pay package, something Dimon and other critics have characterized as "woke".
"I am a red-blooded, free market capitalist and I'm not woke," Dimon said. "All we're saying is when we wake up in the morning, we give a s--- about serving customers, earning their respect, earning their repeat business."