Former Chase chief economist Anthony Chan reacted to JP Morgan Chase CEO Jamie Dimon’s warning of a looming economic “hurricane,” warning that he, too, believes “tough times are ahead.”
Speaking on “Varney & Co.” on Tuesday, Chan also argued that there is “no doubt” that the risk of recession has increased for 2023.
Dimon, who said at the beginning of May there were storm clouds forming on the economic horizon, ratcheted up his warning last week, citing fresh challenges facing the Fed as it seeks to tame the hottest inflation in a generation.
“I said there were storm clouds. But I’m going to change it. It’s a hurricane,” he said during a conference hosted by AllianceBernstein Holdings.
“Right now it’s kind of sunny, things are doing fine, everyone thinks the Fed can handle it,” he continued. “[But] that hurricane is right out there down the road coming our way. We don’t know if it’s a minor one or Superstorm Sandy. You better brace yourself.”
Chan, who remains friends with Dimon, had worked at JP Morgan for 25 years before retiring.
“What he said was we may be seeing a hurricane coming, but remember hurricanes come in five categories,” Chan said.
“So because he said he’s not sure which type of hurricane, I’m worried, but it has got to be a cautious type of concern because we don’t really know,” he explained.
Dimon cited two main issues that are of great concern to him: The Federal Reserve moving to unwind its $8.9 trillion balance sheet, deploying a less-known tool known as quantitative tightening that will further tighten credit for U.S. households as officials try to tame red-hot inflation.
The rundown of the Fed’s portfolio is poised to begin on Wednesday at an initial combined monthly pace of $47.5 billion. The Fed will increase the runoff rate to $95 billion by September, putting the central bank on track to reduce its balance sheet by about $3 trillion over the next three years.
The second matter weighing on Dimon is the Russian-Ukraine war and its effect on the price of commodities like food and oil. The bank CEO said that oil could hit $150 or $175 a barrel as a result of the conflict, which began in late February. Brent crude, the international benchmark, is currently selling for $119 a barrel.
|USO||UNITED STATES OIL FUND L.P.||90.01||+1.59||+1.80%|
|BNO||UNITED STS BRENT OIL FD LP UNIT||35.41||+0.54||+1.55%|
Chan said on Tuesday that while he has “no doubt that the risk of a recession increased for 2023,” the question remains as to whether it is going to be minor or severe, noting the data has been inconclusive.
“But I do know that tough times are ahead because the Federal Reserve, as Jamie Dimon correctly pointed out, they are going to be cutting back on the balance sheet,” he continued.
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FOX Business’ Megan Henney contributed to this report.