Despite suffering the worst post-earnings stock price drop in a decade, Jamie Dimon - whose bank is suddenly facing major compensation and cost pressures - was in good enough spirits to regale participants in his earnings call with some more of his predictive prowess, the same "forecasting ability" which 4 years ago prompted him to predict that bitcoin is worthless and now JPM has a dedicated crypto desk.
According to Dimon, the Federal Reserve might raise its benchmark interest rate as many as "six or seven times" to fight rising inflation, oblivious of the fact that the US economy is already clearly slowing and six or seven rate hikes coupled with balance sheet runoff would push the US economy into recession (and likely trigger a crash as Kyle Bass said yesterday), especially once economists realize that without Biden's BBB, the fiscal cliff is about to grow into a mountain.
Today's retail sales number points to near-flat readings for Q4 real consumer spending and the hand-off to the first quarter. The GDP contraction is starting. Good luck, Jay! #Economy #GDP #DavidRosenberg— David Rosenberg (@EconguyRosie) January 14, 2022
“My view is a pretty good chance there will be more than four,” Dimon said Friday on a conference call with analysts after the biggest U.S. bank released its fourth-quarter results. “It could be six or seven.”
Not that the recent barrage of Fed officials did anything to dissaude Dimon's predictions: Fed speakers have signaled that higher borrowing costs are in the works amid the highest inflation in nearly four decades, and as a result money markets are wagering on six 25-basis-point hikes in the next two years -- before the policy rate plateaus and dips slightly in 2025.
Dimon also predicted it would be a mistake to assume the economy won’t grow during a period in which interest rates are increasing, which of course will be proven dead wrong just like his bitcoin forecast.
However, for better or worse, bond markets still listen to the most important banker in the US, and 10Y yields spiked from a session low of 1.70% to as high as 1.76%, completely undone yesterday’s rally, while Eurodollars are also sharply off with yields in the red pack up as much as 9 bps.
The good news is tath Fed speakers - all of whom have turned uberhawkish in the past month - are entering their blackout period, and the new FOMC appointments announced yesterday skew dovish. That means that for the next two weeks the market will be able to calmly asses the trend of the US economy and realize that it is clearly shifting in a direction where the Fed may soon have to ease to avoid a recession. .