I am in the same camp with Jamie Dimon on two economic issues. If we are correct, the Fed is in for a rough period. 
Dimon Is Skeptical Inflation Will Return to Fed’s 2% Target
I am unsure who arrived at these view first but I have been saying what Dimon says today for a couple of years.
Bloomberg reports Dimon Says He’s Skeptical Inflation Will Return to Fed’s 2% Target
JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said he’s skeptical that inflation will return to the Federal Reserve’s 2% target, citing risks including deficit spending and “remilitarization of the world.”
There’s still a lot of economic uncertainty tied to factors including geopolitics and quantitative tightening, Dimon said Wednesday in a CNBC interview from Kansas City. The central bank will probably cut rates soon, he added, but “I don’t think it matters as much as other people think.”
Dimon has been warning for more than a year that inflation may be stickier than investors expect, and wrote in his annual letter to shareholders in April that JPMorgan is prepared for interest rates ranging from 2% to 8% “or even more.” He said last month that “there has been some progress bringing inflation down, but there are still multiple inflationary forces in front of us.”
Two Distinct Issues
- Lingering Inflation
- Rates Cuts Won’t Matter Much
Bidenomics and Lingering Inflation
Consider my December 21, 2023 post Biden is Using the Term Bidenomics Again, What Else Can He Do?
Biden abandoned the term Bidenomics for over a month. He’s now back at it, with Treasury Secretary Janet Yellen tooting his horn.
[But] If inflation is transitory, then transitory to what?
It’s not all Bidenomics. Both parties are guilty. From the above post:
Rate Cut Headwinds
- Global wage arbitrage and just-in-time manufacturing have reversed to inflationary onshoring and just-in-case manufacturing.
- Neither party will fix deficits and out of control spending.
- Trump’s tariffs and sanctions were hugely inflationary but Biden is much worse.
- Biden’s energy policy and regulatory madness is hugely inflationary.
- Retiring boomers need more medical care services. Their jobs are replaced by unskilled zoomers with a totally different work ethic.
- Massive wage increases in union contracts over a many year period and ongoing minimum wage hikes in many states.
Regardless, the Fed is going to cut rates, I believe 50 basis points in September, perhaps despite what inflation suggests.
Is Inflation Transitory, or Is this Slowdown in Inflation Transitory?
Given the above headwinds, put me in the camp that says the slowdown in inflation is what’s transitory.
Yet, unlike Dimon, interest rates rising to 8 percent are not in my universe of expected results.
Fed is Attentive to the Risks to Both Sides of its Dual Mandate
On July 31, I noted the Fed is Attentive to the Risks to Both Sides of its Dual Mandate
Given serious lags between downturns in the economy and downturns in jobs, coupled with questionable BLS models, I am certain the Fed is behind the curve in half of its mandate.
It’s debatable whether the Fed should have a dual mandate, but it does. And the Fed will react that way. I would not at all be surprised by a 50 basis point cut in September.
Rates Cuts Won’t Matter Much
The idea that a quarter-point cut here or there will matter much is silliness. If the Fed cut rates in July it would not have mattered.
Recessions are caused by events that build up over a very long time like the Great Recession, or sudden uncontrolled and massive shocks like Covid.
In this recession, the Fed destroyed housing in 2020 and has been unable to fix that for four years.
Simultaneously, the Fed created the biggest stock market bubble ever. People are trapped in their mortgages because they do not want to trade their 3 percent mortgage for a 7 percent one (today 6.6%).
Meanwhile the price of home has soared out of sight.
The Fed Will Be Fighting Congress and the White House
Biden’s energy policies are hugely inflationary. Trump’s proposed tariff policy is both recessionary and inflationary.
Both parties will demand the Fed do something, or do another round of foolish stimulus themselves when recession hits.
And we are totally at the mercy of huge issues if either party gets complete control.
Fed Risks
If the Fed does everything right, the best it can realistically hope for is a very anemic, near-recession economy for a long time.
The first risk is the Fed does too much rate cutting and inflation roars back (but jobs don’t),
The second risk is the Fed does too little rate cutting and we have a stock market crash.
Slowly deflating these bubbles will be very difficult especially when the White House is almost guaranteed to be at odds with the Fed, no matter what the Fed does.
Bank of America CEO says research team ‘does not have any recession predicted anymore’
by Nick Robertson – 08/11/24 3:18 PM ET
The CEO of Bank of America, Brian Moynihan, said that the financial giant no longer believes a recession is on the horizon for the American economy, hinting that the Biden administration and Federal Reserve have achieved a “soft landing” after inflation troubles in recent years.
Moynihan told CBS’s Margaret Brennan on “Face the Nation” Sunday that while the economy is slowing, consumer spending remains in line with prepandemic levels.
“Our team is a great team at Bank of America Research; [it] does not have any recession predicted anymore,” Moynihan said. “Last year, this time, it was a recession.”
…
https://thehill.com/business/4822935-bank-of-america-ceo-says-research-team-does-not-have-any-recession-predicted-anymore/
The “sense of entitlement” issue with Gen Z workers trying to dictate employment terms can be solved by some good old fashioned unemployment. It’s already starting to work with quit rates plunging.
Unemployment is still pretty low by historical standards, so I say let it ride. Even a slight rise in unemployment will also have the benefit of cooling wage inflation.
The FED has to cut rates because interest is now the 2nd biggest item in the federal budget behind SS which is a giant Ponzi and mostly paid for by SS taxes on working people but there is a deficit. Interest is more than Defense, Medicare, Medicaid or the Veterans Administration with nearly 300,000 employees and lots of disability pension cases. We need to start cutting things. And we need to raise taxes. This year the deficit is $2 trillion…which is insane, but not quite as insane as 2020 when it was $3.1 trillion and $2.8 trillion in 2021. Higher rates are inflationary because producers simply add that onto the cost of doing business. Only in a recession do high rates cause prices to drop….and we haven’t had a recession yet.
It’s a vicious cycle. If the Fed is seen as throwing in the towel on the inflation fight, then nobody is going to buy long term Treasuries, and the interest costs on the debt will skyrocket to another level. The Fed doesn’t have control over demand for bonds. I bonds will resurge in popularity and then they’ll be paying the inflation rate on the debt. I have some old I bonds circa 2000. When inflation peaked at 9 percent, my I bonds from that period were earning above 13% for one 6 month period.
I hope they cut 50 pts … and this results in hyperinflation …
In real terms there is no inflation, only deflation. When they cut rates, unemployment will soar, because there is anaemic demand: global trade is down; credit / money supply is contracting, hence there inflation is not possible. All price rises are due to synthetic policy-driven additional costs… This is not the definition of inflation. Inflation can only happen when credit/money supply expansion increases faster than growth, but there is no credit/money supply expansion, and there is no growth: hyperDEflation.
The fed created trillions of new dollars to buy treasuries and mortgage backed securities to suppress interest rates. Seems like the increase in production of new goods and services was much less than the money printed. How is that not money supply expansion?
Deflation on an exponential curve is coming due to automation/robots/AI, which will cause unemployment to soar.
Everyone who says the people laid off due to automation are going to be repurposed and will get new jobs are full of crap.
I’m hoping for large increases so CD rates go up.
Before Oct 1. They calculate the annual SS inflation boost with data from the 3 months ending Sep 30.
Interest rates follow inflation. Inflation is currently sub 2% as measured by Truflation, while the Fed is still in QT mode. Meanwhile, the unemployment rate continues to tick up. It seems most people are still too focused on the shiny object inflation (recency bias?), while deflation is the larger threat. The business cycle has not been repealed as Rosenberg says.
Jamie IS the FED. Come on now. I do not buy the thought that there is a Separation of Interests between the BANKERS and the BANKER’S BANK (FED).
THEY ARE ALL ONE BIG TEAM, and much of this is decided by the LARGEST BANK, CHASE and the FED.
The word is “CAHOOTS” – – right???? RIGHT????
And that is also JUST LIKE THE TWO PRIMARY PARTIES in charge. They drink the best scotch and smoke Cubans and decide how to separate out the LOOT – also known as LOBBYING MONEY.
IGNORE what they SAY and PAY CLOSE ATTENTION TO WHAT THEY DO!
Who Runs the World?And how do they exercise control?
https://fasteddynz.substack.com/p/who-runs-the-world
Bankers and economists are not licensed professionals, because their discipine lacks a right answer to the question “Does poop flow uphill or downhill?” So the state can’t test them. Thus the state can’t license them.
What about accountants?
You are always looking for a fight and think you are smarter than your foes. Perhaps that is true. I only contibute when I think I have something from my 40 year work career in government that might help.
EY, KPMG and the fallout of two accounting scandalshttps://www.ft.com/content/0a586a4b-cd3c-4662-acdc-625b8da2b85d
PwC faces crisis in China over audit of failed property giant Evergrande
Little old me? Looking for arguments? I prefer to think I am just presenting alternative points of view.
And to correct some of the misinformation that often appears in the comment section.
A sustained 8% might be the cure we need. But it is going to be awfully tasting medicine for many.
It will be 15% unemployment all the way.
The medicine tasted awful in 1981 when Volcker raised interest rates to 20%. But it worked.
Now THAT was independence and cojones combined! SOmething as far opposite of Powell as can be.
Forgetting for the moment, what the Fed does, or does not do, what should interest rates be if the free market operated? For example, would a rational lender ever tolerate negative real rates? I hope that would be a resounding NO!
Keeping in mind that regardless of any stated goal, the Fed is artificially fixing prices (interest rates); now, what normally happens when any price is fixed outside the market? For example, Kamala fixes the price of doz large eggs at $1, to help the poor. I’m thinking ‘egg shortage’ as supply plummets, and egg demand increases.
One wonders, what exactly, will be the end result of years of ‘irrational’ interest rates? Apart from the obvious wealth transfer…
Japan?
The Fed cut rates to zero while the average inflation was almost 3%. Negative rates
deflated gov debt which rose from $9.5T in Q2 2008 to $35T.
“what should interest rates be?”
THAT is the problem with the Fed
Biden’s “remilitarization of the world” also adds to inflation in several ways. Most directly, sanctions constrain supply of needed commodities. Additionally, spending on proxy wars raises demand by U.S. MIC workers on consumer goods while doing little to raise output of consumer goods. Spending on “guns” AND “butter” without adequate investment in new capacity due to high interest rates is itself inflationary. Tariffs on imports are directly inflationary. The only offset to these forces is a massive influx of new labor across the border, but this has hit a political constraint. In short, Bidenomics is a prescription for persistently high inflation.
I can’t imagine the Fed willingly going for 8% rates, but Dimon may be looking to the possibility the Fed will lose control to a market that’s had enough.
Cutting gov debt and unrealized promises are very very important. If the economy thrives cutting debt will be possible, especially if the Fed enables it. Stage one : cutting rates if the gov is fully committed to cutting debt. Stage two : raise rate to prevent inflation from rising and reaching/breaching the 10%/20% zone. The BOJ raised rates and is fully committed to cutting debt. In Japan gov debt was rising in nominal terms, but deflating in real terms.
If Fed cuts rates below the inflation rate along with a conservative gov which is fully committed to cutting ==> debt will fall in real and nominal terms.
What would interest rates be if the Fed. Government reduced its expenditures to match its income from taxes? Imagine what would happen with an additional couple of $trillion for private investment each year.
How much money got pissed away in Build Back Better? How many gobs did the US get because of the $3.5 trillion Jobs Act?
When the pre Nov election Act that poured in on the swing state fades private businesses might spend trillions to build capacity for our new national interest industries and hire highly skilled workers, especially if the Fed cut rates and make it easier.
I couldn’t see it before. But now I do. Light bulb moment. We can reduce the deficit, and even run a surplus and cut our debt if we issue negative interest bonds (say -1% for a hundred years) and people line up to buy them. Personally I prefer stocks. So I will let everyone else buy the bonds. Thanks Micheal Engel!
A normal inflation : zero to 10%. High inflation ; 20% to 80%. Hyperinflation : 80%+.
Disposable personal income (DPI) is testing the money tsunami high. The DPI
excludes realized and unrealized gains. In July SPX made a new all time high. RE is
high. C/C delinquency is low. Consumers have enough fuel in the tank to carry them
for years, even with a few stock market corrections.
If the Fed cut rates and demand for highly skilled and semi high skilled will be high
the DPI will make a new all time high. Tax collection will rise. Gov budget deficit can flip to green. With that surplus and money in the coffer the gov will be able
to cut debt, if it’s fully committed to cutting debt, even with a few pet projects to please congress.
If inflation pops up the Fed will have to raise rates fast to prevent it from rising the 10%/20% zone . The Dow will rise to a new all time high with a few stopping actions, especially near the top, to prevent a 1929/1932 type depression.
What the hell is ‘a normal inflation?’ This is Keynesian crap to justify meddling in free markets.This government will NEVER be able to cut debt, without revamping the role of government to something much smaller and more effective. I say this because government is largely unproductive and grossly overpaid.
To get a REAL increase in GDP and income (beyond population increases), the US needs real increases in productivity (not war related). Instead, we have DEI.
Get used to it. Zero rates distorted reality for 14 years. Gov jobs were rising, but fading relative to the rise of total jobs.
I would like some of what you are smoking please. How exactly do you get to budget surpluses and paying down the govt debt?
Google: chainsaw government
cut credit, cut inflation
And collapse the economy
Credit is already being cut; the economy is already collapsing.
Like him or not, Dimon always calls “em” as he sees “em.”
The top finance ceo in the business.
Really?? He’s fairly untouchable but still needs to stay PC. He’s a “kept” man running a TBTF branch of the govt.
re: “the slowdown in inflation is what’s transitory.”
Yes, the proxy for inflation rises next year even if money remains tight.
The criminal Demon should probably be put in charge of the whole mess (without publicity of course). Interest rates won’t do much, if anything to curb the inflation or the depression it causes. Much more inflation is needed to maintain the unearned ascendancy of the bloater cronies and impede the collapse of their dubious assets (recession). Meanwhile for the rest, the inflationary depression and social collapse will continue perhaps a little more slowly as feudalism tries to establish itself. .
Perhaps you should focus your efforts on improving your own personal situation rather than whining and crying like a baby over things you cannot control. Its embarrassing.
Too bad the average voter has no concept of what we are discussing here.
Until our news media and our schools teach some basic economics, America doesn’t stand a change. Question of the day. Salesclerk asks: Do you want 20 gauge or 12 gauge?