JPMorgan boss dashes rate-cut hopes, sees 'stickier' inflation due to rising risks

Interest rates in the US could rise to "8% or even higher" in the coming years, according to the head of JPMorgan Chase, who said that they bank was preparing for a wide range of scenarios in light of current high government spending and geopolitical volatility.

In a 61-page annual letter to shareholders on Monday, JPMorgan Chase chief executive Jamie Dimon attempted to quash some of the unbridled optimism in financial markets, with analysts currently expecting the Federal Reserve to begin cutting interest rates in the next few months.

“These markets seem to be pricing in a 70% to 80% chance of a soft landing,” Dimon said. “I believe the odds are a lot lower than that.”

Dimon highlighted that the economy is being "fuelled" by large amounts of government deficit spending and past stimulus, and spending needs will only grow over the coming years which "may lead to stickier inflation and higher rates than markets expect".

“Huge fiscal spending, the trillions needed each year for the green economy, the remilitarisation of the world and the restructuring of global trade—all are inflationary,” Dimon said.

He said that the bank is preparing for scenarios in which rates fall to as low as 2% – from the current 23-year high of 5.25-5.55% – or as high as 8% or more.

Dimon wrote that, while the US economy has held up relatively well, rising geopolitical tensions across Russia and the Middle East could derail the projected outlook and create an environment that “may very well be creating risks that could eclipse anything since World War II".

“America’s global leadership role is being challenged outside by other nations and inside by our polarized electorate [...] We need to find ways to put aside our differences and work in partnership with other Western nations in the name of democracy. During this time of great crises, uniting to protect our essential freedoms, including free enterprise, is paramount."