"Uncertainty in Global Responses... Corporate Earnings Expected to Decline"
Credit Spreads Failing to Reflect Recession Risks
Jamie Dimon, the Chairman and CEO of JPMorgan Chase, often referred to as the "Emperor of Wall Street," has warned that investors are becoming overly complacent at a time when the effects of President Donald Trump's tariffs have yet to fully materialize, calling the tariff rates "extreme." He also pointed out that the risks of rising inflation, a potential economic recession, and heightened geopolitical threats are greater than expected, and he diagnosed that U.S. asset prices are in a bubble.
On May 19 (local time), during JPMorgan's Investor Day event in New York, Dimon stated, "People feel reassured because they have not yet seen the impact of the tariffs," adding, "Recently, the market fell 10% and then rose 10%, which I believe is an overly complacent reaction."
Recently, the market has been fluctuating due to tariff policies. After President Trump introduced aggressive tariff measures, concerns over a recession led to sharp declines in U.S. stocks, bonds, and the dollar. However, when he eased the tariff policies, the market rebounded. The recent first trade agreement between the United States and China also contributed to the rise in stock markets. Dimon's warning is that the market is being excessively optimistic before the full impact of Trump's tariffs becomes apparent.
Dimon assessed that even if tariff rates are reduced, they remain "quite extreme," noting that the responses from other countries are uncertain and that it will take time to strengthen the U.S. manufacturing base. He also predicted that corporate earnings forecasts would be downgraded due to tariffs.
He pointed out that the U.S. economy faces numerous risks, including inflation, credit spreads, and geopolitical threats.
Dimon said that the "outcome of the tariff war is unpredictable," and added, "I believe the likelihood of inflation and stagflation (rising prices amid economic stagnation) is somewhat higher than people think." He also emphasized that the risks stemming from geopolitical instability are extremely high.
He particularly noted that, in a situation where a recession is a concern, credit spreads are not reflecting the potential risks of an economic downturn at all. Credit spreads refer to the difference in interest rates between government bonds and corporate bonds of the same maturity; when economic uncertainty increases, the spread widens, and when conditions are favorable, the spread narrows. According to Dimon, credit spreads are currently too narrow relative to the risk of a recession.
Dimon warned, "Today, credit is a bad risk," and cautioned that "those who have never experienced a major recession are missing what could happen in the credit markets."
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