JPMorgan Chase CEO Jamie Dimon expects the U.S. economy to continue to grow rapidly this year, but how fast the expansion will be will produce very different results.
Barron’s reported that the well-known banker, who is known for his straight talk, gave his views on the outlook for the U.S. economy and financial markets in an online client meeting on the 21st. He believes that the future outlook for the U.S. market will depend on how fast the economy grows, how high inflation will rise, and how the Federal Reserve Board (Fed) reacts.
Damon expects that there are three possible developments.
One, the economy is growing just right
In this economic growth will not be too hot or too cold, Damon predicted that the U.S. economic growth will gradually heat up, resulting in inflation next year from the current 1.7% to about 2.5%, which may lead to the U.S. 10-year bond yield to 3% or less (currently about 1.6%), when the Fed may gradually withdraw easing measures, began to raise short-term interest rates, the federal funds rate from the current close to 0% to 2.5%.
Damon described the situation as “full stacking”, the market rally or economic recovery will not be derailed.
Second, the growth of overheating so that the Fed early rate hikes
But if the economic growth than expected hot head, inflation is the first to rise to 2.7% this year, next year and then rushed up to 3%, then the situation will be very different. By then, the Fed may have to raise interest rates significantly earlier than originally planned, according to Damon estimates that the Fed’s federal funds rate may be pulled up to nearly 4%, while the U.S. 10-year bond yield may jump to 5%, or even 6%. Damon said: “The Fed has shown that if it sees actual inflation, it will take action.”
Damon believes that if this is the case, then “will see a wave of traditional recession”, but the situation will not be seen until next year.
Third, the re-emergence of the epidemic is a different story
If the new pneumonia (Chinese communist virus) epidemic resumes, it will overturn the above two prospects. Damon said, “It’s still possible that some variant of the virus could emerge and render the vaccine ineffective, and that would change the situation.”
For the immediate future, Damon cautioned investors to be aware that the optimistic outlook for a strong economy is already reflected in the current price levels of U.S. stocks, so perhaps future gains may not be as spectacular and investing will be more challenging.
Recent Comments