In an interview with Bloomberg on May 31, 2023, JPMorgan Chase CEO Jamie Dimon said that he expects the Federal Reserve to pause its rate hike cycle after July, but that the central bank may need to resume raising rates if inflation remains high.
“I think we’ve had a big move in rates,” Dimon said. “I think a pause is warranted. But I also think you have to be prepared for rates to go up a little more because inflation is proving stickier than people thought.”
Dimon also warned about the potential for volatility caused by quantitative tightening (QT), a process by which the Fed reduces its balance sheet by selling off assets.
“We’ve had quantitative easing for the better part of 15 years, and now we’re going to see quantitative tightening,” Dimon said. “The effects of that might be harsher than people expect.”
Dimon’s comments come as the Fed is facing a difficult balancing act. On the one hand, it needs to raise rates to combat inflation, which is at a 40-year high. On the other hand, it needs to be careful not to raise rates too quickly or too high, which could risk a recession.
The Fed has already raised rates by 75 basis points since March, and it is expected to raise rates by another 50 basis points at its next meeting in June.
However, Dimon believes that the Fed may pause its rate hike cycle after July, as it assesses the impact of its previous rate hikes.
Even if the Fed does pause its rate hike cycle, Dimon warns that the central bank will continue to reduce its balance sheet through QT.
QT is a process by which the Fed sells off the assets that it has accumulated on its balance sheet, which has the effect of draining money from the financial system.
Dimon says that QT will be “painful” for the economy, as it will lead to higher interest rates and slower economic growth. However, he says that it is necessary for the Fed to combat inflation.
