JPMorgan Chase & Co (NYSE:JPM, ETR:CMC) CEO Jamie Dimon struck a cautious tone in his annual letter to shareholders, warning that recent tariffs are likely to push inflation higher and have increased the likelihood of a recession.
Recent data has shown the US economy to be resilient, with businesses healthy and consumers freely spending – until some recent weakening, he noted.
The tariffs announced by Donald Trump, including a blanket 10% tariff around the world and extra 'reciprocal' tariffs on some nations last week, "will likely increase inflation and are causing many to consider a greater probability of a recession", Dimon wrote.
"These significant and somewhat unprecedented forces cause us to remain very cautious."
While inflation has eased in recent months, Dimon sees the future as "inflationary" due to persistent fiscal deficits, the recent pledges for rearmament and infrastructure spending, and shifts in trade and tariff policy.
In the short term, he said inflation is likely to be seen not only on imported goods but also on domestic prices, as input costs rise and demand increases on domestic products.
"How this plays out on different products will partially depend on their substitutability and price elasticity. Whether or not the menu of tariffs causes a recession remains in question, but it will slow down growth."
He also flagged that these dynamics will impact interest rates, especially highlighting that while the Fed has some affect on the 10-year interest rate in the short run, "ultimately, the 10-year rate will be based upon inflation, the strength of the US economy and expectations of the future value of the dollar, and the supply and global demand for long-term treasuries.
"All things being equal, the slower the growth, the lower the interest rates, and the higher the inflation, the higher the interest rates," he said, recalling that in the 'stagflation' period of the 1970s, "recessions did not stop the inexorable trend of rising rates".
The recent cuts to interest rates had been to the weakening dollar and the prospect of slower growth, but Dimon said this trend could still reverse, though markets "still seem to be pricing assets with the assumption that we will continue to have a fairly soft landing".
"I am not so sure," he said.
Dimon cautioned that the current economic and geopolitical cross currents "may take years to play out" and warned that "it’s almost impossible to confidently put them into a quarterly or even annual forecast."
Still, he said JPMorgan is prepared for a wide range of scenarios and would remain strong "even with fairly extreme outcomes".