[Summary] "Unprecedented Risk Approaching" 5 Warnings from 'King of Wall Street' Dimon

[Image source=Reuters Yonhap News]

[Asia Economy New York=Special Correspondent Joesulgina] "The world order is changing. This could be an unprecedented risk."

Jamie Dimon, chairman of JP Morgan Chase, the largest bank in the United States, warned of an "unprecedented risk" in a shareholder letter spanning 44 pages. He diagnosed that as the U.S. economy emerges from the COVID-19 pandemic, the combination of high inflation, interest rate hikes, and the Ukraine crisis has dramatically increased economic uncertainty more than ever before.

In the annual shareholder letter released on the 4th (local time), Dimon stated that the combination of three factors ? economic rebound from COVID-19, inflation, and the Ukraine war ? "could dramatically increase risks." While citing recent trends in economic growth and wage increases as reasons the U.S. economy could perform well through next year, he emphasized the need to "prepare for the possibility of negative outcomes" due to these variables.

Dimon's warnings on the day can be summarized into five main points. First, the aftermath of the largest-ever economic stimulus and quantitative easing measures taken after the pandemic. As a result, inflation in the U.S. soared to its highest level in 40 years, and the global asset market bubble expanded further. Dimon said, "The Federal Reserve (Fed) and the administration did the right thing with bold and dramatic measures after the pandemic," but added, "In hindsight, the prescriptions (fiscal spending and quantitative easing) were excessive and lasted too long." He predicted that as the money supply is finally tightened and normalization proceeds, growing pains will be inevitable.

Next, he forecasted that the Fed's interest rate hikes would accelerate beyond market expectations. Dimon suggested the possibility of a big step increase of 0.5 percentage points at once, moving away from the pattern of 0.25 percentage point increments. He also predicted, "this process could cause significant disappointment in the market and tremendous volatility."

He also warned about the economic impact of the Ukraine war and sanctions against Russia. Dimon said, "The Ukraine war and sanctions on Russia will slow the global economy and could worsen it," projecting that Russia's GDP will plunge by 12.5% by mid-year. He forecast that Europe's annual growth outlook, heavily dependent on Russian raw materials, will fall from 4.5% to 2%, and the U.S. growth forecast will drop from 3.0% to 2.4%.

Potential deterioration of supply chains, including the energy market, was also pointed out. He noted, "The unpredictability of the war itself and uncertainties surrounding global commodity supply chains together create a potentially explosive situation." Accordingly, he argued for rebuilding supply chains linked to national security. Dimon emphasized, "Essential materials for national security such as rare earths, 5G, and semiconductors should be produced domestically or sourced only from friendly allies, and critical technologies should not be shared with potential adversaries." He also called for the development of a new Marshall Plan to reduce Western countries' dependence on Russian energy.

Finally, Dimon warned of the possibility of a prolonged Ukraine war, which could lead to "realignment of alliances and restructuring of global trade." He said, "The U.S. must prepare for the possibility of a prolonged Ukraine war that could produce unpredictable outcomes," and stressed that this should be recognized as a "wake-up call" for democracy. He further suggested, "It is necessary to pursue a strategy aimed not only at resolving the current crisis but also at maintaining the long-term unity of a newly strengthened democratic alliance."