I am in the same camp with Jamie Dimon on two economic issues. If we are correct, the Fed is in for a rough period.

Dimon Is Skeptical Inflation Will Return to Fed’s 2% Target

I am unsure who arrived at these views first but I have been saying what Dimon says today for a couple of years.

Bloomberg reports Dimon Says He’s Skeptical Inflation Will Return to Fed’s 2% Target

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said he’s skeptical that inflation will return to the Federal Reserve’s 2% target, citing risks including deficit spending and “remilitarization of the world.”

There’s still a lot of economic uncertainty tied to factors including geopolitics and quantitative tightening, Dimon said Wednesday in a CNBC interview from Kansas City. The central bank will probably cut rates soon, he added, but “I don’t think it matters as much as other people think.”

Dimon has been warning for more than a year that inflation may be stickier than investors expect, and wrote in his annual letter to shareholders in April that JPMorgan is prepared for interest rates ranging from 2% to 8% “or even more.” He said last month that “there has been some progress bringing inflation down, but there are still multiple inflationary forces in front of us.”

Two Distinct Issues

1. Lingering Inflation
2. Rates Cuts Won’t Matter Much

Bidenomics and Lingering Inflation

Consider my December 21, 2023 post Biden is Using the Term Bidenomics Again, What Else Can He Do?

Biden abandoned the term Bidenomics for over a month. He’s now back at it, with Treasury Secretary Janet Yellen tooting his horn.

[But] If inflation is transitory, then transitory to what?

It’s not all Bidenomics. Both parties are guilty. From the above post:

Rate Cut Headwinds

• Global wage arbitrage and just-in-time manufacturing have reversed to inflationary onshoring and just-in-case manufacturing.
• Neither party will fix deficits and out of control spending.
• Trump’s tariffs and sanctions were hugely inflationary but Biden is much worse.
• Biden’s energy policy and regulatory madness is hugely inflationary.
• Retiring boomers need more medical care services. Their jobs are replaced by unskilled zoomers with a totally different work ethic.
• Massive wage increases in union contracts over a many year period and ongoing minimum wage hikes in many states.

Regardless, the Fed is going to cut rates, I believe 50 basis points in September, perhaps despite what inflation suggests.

Is Inflation Transitory, or Is this Slowdown in Inflation Transitory?

Given the above headwinds, put me in the camp that says the slowdown in inflation is what’s transitory.

Yet, unlike Dimon, interest rates rising to 8 percent are not in my universe of expected results.

Fed is Attentive to the Risks to Both Sides of its Dual Mandate

On July 31, I noted the Fed is Attentive to the Risks to Both Sides of its Dual Mandate

Given serious lags between downturns in the economy and downturns in jobs, coupled with questionable BLS models, I am certain the Fed is behind the curve in half of its mandate.

It’s debatable whether the Fed should have a dual mandate, but it does. And the Fed will react that way. I would not at all be surprised by a 50 basis point cut in September.

Rates Cuts Won’t Matter Much

The idea that a quarter-point cut here or there will matter much is silliness. If the Fed cut rates in July it would not have mattered.

Recessions are caused by events that build up over a very long time like the Great Recession, or sudden uncontrolled and massive shocks like Covid.

In this recession, the Fed destroyed housing in 2020 and has been unable to fix that for four years.

Simultaneously, the Fed created the biggest stock market bubble ever. People are trapped in their mortgages because they do not want to trade their 3 percent mortgage for a 7 percent one (today 6.6%).

Meanwhile the price of home has soared out of sight.

The Fed Will Be Fighting Congress and the White House

Biden’s energy policies are hugely inflationary. Trump’s proposed tariff policy is both recessionary and inflationary.

Both parties will demand the Fed do something, or do another round of foolish stimulus themselves when recession hits.

And we are totally at the mercy of huge issues if either party gets complete control.

Fed Risks

If the Fed does everything right, the best it can realistically hope for is a very anemic, near-recession economy for a long time.

The first risk is the Fed does too much rate cutting and inflation roars back (but jobs don’t),

The second risk is the Fed does too little rate cutting and we have a stock market crash.

Slowly deflating these bubbles will be very difficult especially when the White House is almost guaranteed to be at odds with the Fed, no matter what the Fed does.

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