Jamie Dimon thinks interest rates could rise to 8% or higher. He also said in a new letter that a recession and stagflation may be coming.
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The housing industry has been hoping for lower mortgage rates for two years, but on Monday JPMorgan Chase & Co.’s high-profile CEO offered a contrary prediction that no one will like: Over the long term, rates are likely to rise. semester.
Jamie Dimon, arguably America’s most famous banking executive, makes his prediction In Monday’s shareholder letter. Dimon said, among other things, that interest rates could eventually reach 8% and that recession and stagflation are both possible.
“We are prepared for a very broad range of interest rates, from 2% to 8% and even higher, with the same broad range of economic outcomes – strong economic growth and moderate inflation (in this case, higher of interest rates will come from higher interest rates) (capital demand) leading to recession and inflation; i.e. stagflation,” he wrote in the letter.
While such comments open the door to better economic times, Dimon did write that over the long term, inflation is likely to rise rather than fall, as the Fed hopes. He also said that economic models predicting some relief in this regard may ignore key global trends.
Dimon believes: “The huge fiscal spending, the trillions of dollars needed every year to green the economy, the remilitarization of the world and the restructuring of global trade – all of these will lead to inflation.”
Dimon’s comments came amid a surge in inflation at the end of the COVID-19 pandemic. The Fed started raising interest rates sharply nearly two years ago to combat inflation, and as of Friday, Their proportion is 5.33% — well below the cap Dimon proposed in his letter. The Fed does not directly control mortgage rates, but mortgage rates generally rise as the Fed’s borrowing costs increase.
In other words, if Dimon is correct that various global trends will keep inflation high in the coming years, the cost of getting a home loan is likely to rise as well.
Dimon’s comments also run counter to accepted wisdom in some quarters of the real estate industry. Last fall, for example, several economists predicted that mortgage rates had peaked. Some are also predicting a gradual decline in interest rates this year and into 2025, although there is some disagreement over how much.
Separately, some economists have recently revised their forecasts to reflect higher interest rates over a longer period.
Regardless, agents across the U.S. have been hoping for a big drop in home prices in the spring, typically the busiest month for homebuying. Instead, interest rates have been bouncing up and down this year, sometimes undermining demand for loans.
Dimon’s purpose in Monday’s letter was to reassure shareholders that his company is prepared for any future events that may occur. He sees higher interest rates as a possibility, not a certain outcome.
But he did point to “significant government deficit spending” and a host of other facts that could ultimately keep borrowing costs high.
“This could lead to higher inflation and interest rates than the market expects,” Dimon wrote.
Email Jim Dalrymple II
