Jamie Dimon sees more rate hikes than we think for the U.S. economy this year.
The JPMorgan (JPM) chief executive officer predicted on Friday that rising inflation could prompt the Federal Reserve to raise short-term borrowing costs as many as six or seven times, doubling down on his earlier bet that the currently-anticipated three to four increases are likely a low estimate of what investors can expect.
“My view is, there’s a pretty good chance there will be more than four — there could be six or seven,” Dimon said during a post-earnings conference call Friday morning. “I grew up in a world where Paul Volcker raised his rates 200 basis points on a Saturday night.”
A JPMorgan spokesperson said Dimon was discussing the "possibilities over time, not probabilities," in his remarks and it really depends on the value of such hikes.
The Fed has made a sharp, hawkish turn on monetary policy in recent months amid a backdrop of surging inflation and a faster-than-expected labor market recovery to tilt towards a quicker pullback of pandemic-era stimulus. The pivot has prompted big Fed watchers — the likes of Goldman Sachs and Deutsche Bank among them — to revise their outlooks in anticipation that short-term interest rates will be higher by the end of 2022 than where they are now.
Dimon has been among that cohort, previously expressing his view that the U.S. economy could absorb more than four rate hikes this year.
“This whole notion that it’s somehow going to be sweet and gentle and no one is ever going to be surprised I think is a mistake, but that does not mean we won’t have growth,” the nation’s top banker said during the call after JPMorgan’s fourth quarter earnings release.
“At this point, it’s up to the Fed to thread the needle: slow down the growth in inflation without stopping the growth,” he said, adding that he has "a lot of faith in Jerome Powell.”
Hennessy Large Cap Financial Fund Portfolio Manager David Ellison told Yahoo Finance Live that if Dimon’s estimate is correct, assuming increases of 25 basis points each, that would mean short-term rates could be up 2% by the end of the year.
“If it’s that much, the market is going to have a lot of trouble across the board, just because the last time we did this, it got beat up,” said Ellison, who criticized Dimon's remarks on rate hikes calling it "an irresponsible comment" because of the impact the JPMorgan CEO's comments can have on markets.
Shares of JPMorgan Chase & Co fell as much as 5% in early trading Friday after the company reported fourth quarter earnings that reflected a 14% drop in profits during the period due to a slowdown in trading activity, narrowly beating analyst estimates thanks to strong performance in its investment banking unit. Specifically, the bank saw trading revenue fall 13%, while investment banking revenue jumped 28%, boosted by a blockbuster year for deals. In all, JPMorgan turned a profit of $10.4 billion, or $3.33 per share, in the period ending December 31.
“We broke open the piñata today on earnings and the operative word is in line,” Ellison told Yahoo Finance Live. “I think that’s why the stocks are trading down."
JPMorgan’s core business, loan growth, was up 6%, boosted by economic recovery, and net interest income from lending, while investments in Treasury securities was up 3%. The company, like other U.S. lenders, would benefit from interest rate hikes this year.
Shares of JPMorgan were down 5.43% at $159.10 a piece as of 11:45 a.m. ET.
Alexandra Semenova is a reporter for Yahoo Finance. Follow her on Twitter @alexandraandnyc