JPMorgan’s top executive Jamie Dimon said the Federal Reserve could be more aggressive than many may have anticipated when it comes to fighting inflation.
“My view is a pretty good chance there will be more than four,” Dimon said during the bank’s earnings call Friday. “It could be six or seven.”
The CEO on Tuesday told CNBC he’d be surprised if the central bank hiked rates only four times, especially since he expects inflation to remain well above the central bank’s 2% target by the end of 2022.
Higher interest rates, Dimon said, would cause investors to “redo projections and look at the effective interest rate and businesses differently than they did before.”
Dimon’s forecast is roughly double that of other Wall Street commentators.
Goldman Sachs on Monday said it expects the Fed to raise rates four times this year after the US unemployment rate ticked down in December. The central bank currently holds almost $9 trillion worth of bonds, mainly Treasuries and mortgage-backed securities. Deutsche Bank is also penciling in four rate rises this year while Bank of America sees three.
Stock markets have been roiled in early 2022 by expectations that the Fed will repeatedly hike rates and start reducing its balance sheet, bringing an end to the the central bank’s massive support of the US economy through the pandemic.
The Fed’s latest projections see it taking a more dovish course of action than most Wall Street economists expect. Estimates published after the Federal Open Market Committee’s December meeting show officials expect to hike interest rates three times in 2022 and another three times next year.
The new projections followed a meeting in which officials doubled the pace for shrinking its emergency asset purchases. The new schedule sets the program up to end in March, hinting the first rate increase could arrive as early as the FOMC’s March meeting.
Fed Chair Jerome Powell hinted during his Tuesday confirmation hearing that the central bank is open to raising rates further in 2022 should inflation prove more stubborn than expected. The economy “no longer needs this very highly accommodative stance” to continue its recovery, especially with inflation running as high as it has, Powell told the Senate Banking Committee.
“If we have to raise interest rates more over time, then we will,” the chair said. “To get a long expansion, we’re going to need price stability.”
Powell also reiterated his forecast that inflation will start to ease by the second half of 2022. Data out Wednesday showed prices soaring 7% year-over-year in December, marking the fastest pace since 1982 and accelerating slightly from November’s rate. Yet month-over-month growth slowed for the second straight month, signaling inflation could’ve peaked in the fourth quarter.
It would take a historic slowdown for inflation to hit the Fed’s 2% target by the end of 2022. Yet with the supply-chain mess healing and Americans’ spending sharply slowing, it might not take the seven rate hikes Dimon sees on the horizon.