JPMorgan CEO Jamie Dimon throws doubt on ‘Goldilocks’ economy, cites ‘huge deficit’

JPMorgan boss Jamie Dimon warned that a so called “Goldilocks” economy — with growth that’s not too hot or too cold — may not save the US from a recession as the government faces a “huge deficit”. “I’m a little skeptical on this Goldilocks scenario. I still think the chances of it not being a soft landing are higher than other people,” Dimon told Fox Business from San Francisco, where JPMorgan is hosting its 42nd Annual Healthcare Conference from Jan.

8 to 11. Dimon warned about a slew of issues that could disrupt the economy in the coming months, including COVID relief that’s set to run out this year. “The extra money that [consumers] got during COVID, trillions of dollars, that’s kind of running out. It’s been pushed out for a whole bunch of reasons but it runs out this year,” Dimon told Fox.

The US Small Business Administration has fought to hold onto the adjustments made to its Economic Injury Disaster Loan (EIDL) and Paycheck Protection Program (PPP) terms made during the pandemic, introducing a 60 day goodwill extension for borrowers on Friday. “For COVID EIDL and PPP borrowers with loans under $100,000, the SBA has implemented a 60 day goodwill exception period starting Jan.

1 and lasting through March 3, 2024,” the SBA announced . Other COVID related federal programs, including Pandemic Unemployment Assistance, Pandemic Emergency Unemployment Compensation and Extended Benefits, have expired. However, “the government [also] has a huge deficit which will affect the markets,” the 67 year old boss of the world’s largest bank also warned in the segment with Fox on Tuesday.

The country’s mounting debt recently surpassed a record high of $34.01 trillion. Michael Cembalest, who runs JPMorgan’s market and investment strategy unit in the bank’s asset management division, predicted dire consequences for the economy if the Biden administration doesn’t start tackling the debt — which he said is akin to a “boiling frog” for the economy.

The “boiling frog” concept comes from a metaphor used to describe a situation whereby an undesirable set of circumstances is tolerated for an extended period of time — such as a frog that is thrown into water that is gradually heated. Once the circumstances become too dire — and the water is heated to a boil — it is too late for the frog to act and it is cooked alive.

The Congressional Budget Office’s January 2020 projections showed that gross federal debt wouldn’t eclipse $34 trillion until fiscal year 2029. But the debt grew faster than expected because of increased government spending caused by the pandemic 2020 that shut down much of the US economy. Should the US economy dip into a recession, Dimon appeared optimistic that the outcome wouldn’t be “terrible.” “There might be a mild recession or a heavy recession.

Obviously all of us in business have to learn to deal with the ups and downs of the economy. … But I do think the cross currents are pretty high: the money running out, rates are high, QT [quantitative tightening] hasn’t happened yet,” Dimon told Fox. Wall Street has been more optimistic than Dimon that Americans are in for as many as three rate cuts in 2024 after Fed Chair Jerome Powell signaled that the central bank’s historic tightening of monetary policy is likely over following the latest Federal Open Market Committee meeting.

Borrowing rates are currently at a 22 year high, between 5.25% and 5.5%, as the Fed has struggled to tamp inflation down to its 2% target — a rate the US economy hasn’t seen in over a decade that likely won’t be achieved by 2025, Powell has said. A key data point for Fed officials is inflation, which rose 3.1% in November.

The Bureau of Labor Statistics is set to release December’s Consumer Price Index — which tracks changes in the costs of everyday goods and services — on Thursday. Economists at FactSet are predicting that the reading shows a 3.2% advance, which would threaten to delay the first of the Fed’s highly anticipated rate cuts.

Bank of America analysts wrote in a Tuesday note to clients that a higher than expected inflation figure could “keep the Fed in wait and see mode,” delaying rate cuts to later in the year. Wall Street analysts have said that the Fed could slash interest rates as early as March, though that may be wishful thinking if inflation remains stubbornly above the central bank’s 2% goal..