Source: Gelonghui
Hard landing, stagflation, interest rate hikes?
Just last week, the US debt alarm was sounded, and J.P. Morgan CEO Dimon issued another warning about the US economy.
A “hard landing” for the US economy is not ruled out
As the leader of America's largest bank, Damon, known as the “big brother of Wall Street,” recently stated that the possibility of a “hard landing” for the US economy is not ruled out; stagnation will be the “worst outcome.”
That is, inflation continues to rise, but economic growth slows in the face of high unemployment.
“I looked at the results again, and the worst for all of us were stagflation, high interest rates, and recession. This means that the company's profits will fall. We'll get through it all though. But I still think it's more likely than anyone else thought.”
However, he also said that even if the economy falls into recession, “the consumption situation is still good.” Because the US unemployment rate has been below 4% for about two years, wages, housing prices, and stock prices have been rising.
But he also stressed that the level of consumer confidence is very low.
“This appears to be mainly due to inflation... additional funding from the COVID-19 pandemic has been falling.”
Interest rate hikes and interest rate cuts
Dimon said interest rates are still likely to rise “slightly.”
“I think inflation is trickier than people think. This is more likely than others think, mainly because huge fiscal and monetary stimulus programs are still in place and may still be driving this liquidity.”
“Is the world ready for higher inflation? Not likely.”
Regarding the timing of interest rate cuts, Dimon said that although market expectations are “pretty good,” “they are not always right.”
On Wednesday, the latest minutes of the Federal Reserve's meeting were “once again loud”: if inflation does not fall back, interest rate hikes will be considered.
The hawkish tone of the minutes indicates that the prospects for cutting interest rates are “bleak” and that the Federal Reserve may maintain higher interest rates for a longer period of time.
Starting in 2024, inflation is more stubborn than expected, according to a series of data. The Federal Reserve's target is a 2% inflation rate, but all indicators show that price increases far exceed this target.
The market's bets on the Fed's interest rate cuts and the number of interest rate cuts during the year are cooling down sharply.
According to the CME FedWatch tool, the probability that the Fed will cut interest rates for the first time in September is less than 50%, and the number of interest rate cuts during the year was also reduced from 2 to 1.
Earlier this year, the market expected interest rates to be cut at least six times. The Federal Reserve also previously expected to cut interest rates by 25 basis points three times during the year.
“Federal Reserve microphone” Nick Timiraos wrote that at a recent meeting, Federal Reserve officials concluded that they need to keep interest rates at current levels longer than previously anticipated. Last month, the US inflation data was disappointing for the third month in a row.
According to the latest minutes, officials suggest they are less sure about the extent to which the policy is restrictive. Some officials also said that if the risk of inflation makes it reasonable to tighten the policy, they are willing to further tighten the policy.
Price pressure slowed markedly in the second half of last year. Federal Reserve officials hinted in March that if there were another month or two of moderate inflation, they might be ready to start cutting interest rates.
However, a series of data for the first quarter shows that price pressure in the economy is heating up, and unless the job market weakens unexpectedly, the Federal Reserve has been forced to put aside any consideration of starting to cut interest rates in the next few months.
Sound a wake-up call for US debt
Earlier, Damon and Bridgewater Dario sounded a wake-up call for the sharp rise in US debt.
Dario, founder of the world's largest hedge fund Qiaoshui, warned last week that as debt piles up, the US bond market will be impacted. America is on the verge of a “civil war,” and the probability of an outbreak is between 35% and 40%.
He also advised American investors to transfer some of their capital to overseas markets.
India, Singapore, Indonesia, Malaysia, Vietnam, and some Gulf countries are potentially attractive investment destinations. At the same time, gold is also a good diversification tool.
Coincidentally, Dimon also urged the US to resolve the deficit as soon as possible.
He hoped that the US government would take the initiative to take measures, focus on reducing its annual budget deficit, and not wait until problems arise before acting.
“The sooner we pay attention to this issue, the better, to the extent that it will cause problems... The problem will be caused by the market, and then you'll be forced to deal with it, and probably in a way that's more uncomfortable than it was at the beginning.”
He said that the efforts made by the US government to support its economy have not been counteracted, and allowing the deficit to continue to grow could get out of control.
“Any country can borrow money to drive some growth, but that doesn't always lead to good growth. Therefore, I think the US should be very clear that we must pay more attention to our fiscal deficit, which is important to the world.”
edit/lambor