Following the publication of JPMorgan's flash report, Jamie Dimon spoke about… CNBC According to his report, “many economic indicators remain favorable,” however, looking to the future, they still face a series of significant uncertainties.
In addition to inflation and wars, he also pointed to the efforts of the Federal Reserve, where the central bank has set the goal of reducing its current balance sheet of $7.5 trillion. “We have never seen the full impact of quantitative tightening of this magnitude,” Dimon said.
The central bank allows up to $95 billion of its expiring bonds to expire each month without reinvesting the money, which effectively means a $1,500 billion decline since June 2022. Although the Fed is expected to slow the pace of quantitative easing in the coming months However, the balance sheet will continue to tighten.
On the other hand, according to this year's experience, inflation is higher than expected, far exceeding the Fed's 2% target. Markets had to temper their expectations about the pace of interest rate cuts. While at the beginning of the year they could have envisioned a rate cut of up to 1.75 percentage points this year, today the forecast is for a maximum of 0.5 percentage points. A slower pace of interest rate cuts is good for banks as long as it does not cause a recession and loan losses greater than profits.
Cover image credit: Win McNamee/Getty Images
