With the recent successful performance of the US economy, the Federal Reserve has elected to keep interest rates higher for longer, with Fed Chair Jerome Powell suggesting that the Fed will collect more economic data before making any cuts In a recent letter to shareholders, JPMorgan Chase CEO Jamie Dimon outlines his concerns for the economy, claiming the bank is prepared for a wide scenario of interest rates ranging from to 2% to 8%.
UBS Investment Bank Chief U.S. Economist Jonathan Pingle joins Market Domination to discuss the economic outlook as the possibility of higher for longer interest rates in the US persists.
Pingle elaborates on Dimon's shareholder letter and outlines a scenario that the Fed hopes to avoid: "I think Jamie Dimon, and I think being in a bank certainly you want to assess and be prepared for any of these risks. So it could be inflation not only proves sticky but starts to resume increases. I think Chair Powell is actually worried about that risk as well. When you get to July and August, the base effects are going to flip, right? We had very low month-over-month increases in inflation in July and August of last year. You replace those with relatively strong increases and inflation... I think that's a scenario that the Fed wants to avoid and I think that's the kind of scenario that would put rate hikes potentially back on the table at some point."
JAMIE DIMON: Well, the US economy has impressed all year. But the flip side of this success are interest rates that may continue to stay higher for longer. Joining us now to discuss the economic outlook and more is Jonathan Pingle, Chief US Economist at UBS.
Jonathan, thanks so much for joining us. Let's take a look back at last week. We had both the jobs report on Friday. And we also had Chair Powell speaking and outlining his view. He had a lot of Fed speak last week.
I'm just curious. As we kind of move past that March meeting, we got the three rate cuts penciled in. Do you feel like the Fed is still there? Do they want to be there? How are you thinking about kind of all this buildup towards June kind of feels like where we'll be for the next eight weeks?
JONATHAN PINGLE: Yeah, to be honest, that was one of the more remarkable things about Chair Powell's comments last Wednesday. You know, the message, he seemed completely unfazed referring to a three month moving average of nonfarm payroll employment of $265,000.
And even after the strong employment report on Friday, that average is now 276, so it's not a whole lot different. And on the Wednesday in his comments, he referred directly back to the March summary of economic projections, you know, which the median participant had penciled in three rate cuts this year.
So it sounds like to the chair-- you know, setting aside a lot of the more hawkish rhetoric coming out of the regional Fed presidents, it does sound like to the chair that that March SEP is kind of still operable, to use a word that Chair Powell has used before.
But I really do think it hinges heavily on the inflation data we're gonna get this week. I mean, I-- you know, we can-- we can debate whether or not the strength in the employment report is enough to sort of keep rates higher for longer. But I think ultimately-- you had a guest on earlier saying the Fed sounds like they would like to cut, I think they would. It's really inflation that's gonna determine whether or not they can.
JULIE HYMAN: Well, and it struck us today that you had Jamie Dimon in his shareholder letter saying, well, we're prepared for interest rates to be 2% to 8% or even more. I mean, that's a pretty broad range of what they're prepared for. And maybe he's just being Jamie Dimon and being safe and preparing for every eventuality.
But the idea that we could see rates not come down, I mean, how likely do you think that-- some of your peers on the Street, not many of them. But some of them are saying maybe we won't even get a cut this year.
JONATHAN PINGLE: So first of all, the potential-- the potential for-- there's the-- risk of something happening are pretty-- and the potential range of potential outcomes here is pretty wide, right? So I think, you know, Jamie Dimon and I think being in a bank, certainly you want to assess and be prepared for any of these risks.
So, you know, it could be that inflation not only proves sticky but starts to resume increases. I think Chair Powell actually is worried about that risk as well. You know, when you get to July and August, the base effects are gonna flip, right?
We had very low month-over-month increases in inflation in July and August of last year. You replace those with relatively strong increases, and inflation is going-- year-over-year change is gonna start to pick back up as you head into the end of this year. I think that's a scenario that the Fed wants to avoid. And I think that's the kind of scenario that would put rate hikes potentially back on the table at some point.
I don't think that's the near-term risk here. I think the risk right now is base effects are going their way. We are expecting a step down in the CPI to be reported on Wednesday. You know, we'll get the full run of PPI, CPI to look at the March PC inflation data.
I think that's really also gonna tell us a lot about, you know, are we gonna sort of stall around 2 and 1/2% inflation, or is this likely to continue moving lower? I mean, I think we're gonna learn a lot not just in, you know, over the month change in March. But when we look at the components, it'll give us, I think, a much better sense to go forward.
