JPMorgan Chase CEO Jamie Dimon has warned Americans could soon be facing 7 percent interest rates – the highest level since 1990.
In a new interview, Dimon said the US needed to prepare for further rate hikes – adding his own bank was prepared for them to go as high as 8 percent.
The stark warning is at odds with most analysts’ predictions that the Federal Reserve will likely only raise rates one more time this year by 0.25 percentage points. Currently the Fed’s funds rate is hovering between 5.25 and 5.5 percent.
When asked if it could reach 7 percent, Dimon told Bloomberg TV: ‘Yeah, it’s possible. When I talk to my board I say ‘can it go to 7%?’ Yes.
‘Are there factors that would drive it higher than it is today? Yes.’
JPMorgan Chase CEO Jamie Dimon, pictured, has warned Americans could soon be facing 7 percent interest rates – the highest level since 1990
The stark warning is at odds with most analysts’ predictions that the Federal Reserve will likely only raise rates one more time this year by 0.25 percentage points. Currently the Fed’s funds rate is hovering between 5.25 and 5.5 percent
He added: ‘I’m just saying be prepared for it. I’m not worried about JPMorgan. We’re prepared, we can handle 7 percent, we could handle 2 percent again.’
Pressed on whether the firm could cope with a hike as high as 8 percent, he said: ‘Yes.’
Dimon appeared to be doubling down on an interview he gave to the Times of India last week where he warned the world is not prepared for 7 percent interest rates.
Speculating what that meant in real terms, he said it could spell a mild recession or even a ‘harder recession,’ adding there are ‘a lot of potential bad outcomes.’
The Federal Reserve has embarked on an aggressive hiking regimen to tame inflation and rampant consumer spending. It has sent rates spiraling from between 0.25 and 0.5 percent in March 2022 to 5.25 to 5.5 percent today.
Rates have not been as high as 7 percent since December 1990.
The funds rate is effectively the rate at which firms borrow and lend money to each other overnight.
It does not directly dictate interest rates consumers pay but fluctuations do have a knock-on effect on mortgage payments, credit card loans and savings yields.
For example, the rate on a typical 30-year mortgage has shot up from around 2 percent in 2021 to 7.31 percent, according to data from Government-backed lender Freddie Mac.
It means a homeowner with a $400,000 property now faces monthly payments of around $2,608, assuming a five percent downpayment.
By comparison had the same buyer fixed in September 2021 – when rates were 3 percent – their monthly payments would be $1,000 cheaper at $1,602.
The Fed’s funds rate does not directly dictate interest rates consumers pay but fluctuations do have a knock-on effect on mortgage payments, credit card loans and savings yields
Meanwhile the average credit card interest rate is 20.71 percent, according to Bankrate.
Dimon’s comments come after the Fed decided to hold interest rates steady during last month’s two-day meeting.
Projections released alongside the decision showed the likelihood of one more increase this year, followed by two cuts in 2024 – which is two fewer than were indicated during the last update in June.
Speaking at a press conference following the announcement, Fed Chairman Jerome Powell said: ‘We’re in a position to proceed carefully in determining the extent of additional policy firming.’
Inflation accelerated for a second consecutive month to a 3.7 percent annual rate in August – up from 3.2 percent in July – and still considerably higher than the Fed’s 2 percent target.