Dimon raises alarm level over recession risk: ‘It’s a hurricane’
JPMorgan Chase CEO Jamie Dimon and Wells Fargo CEO Charlie Scharf voiced concern Wednesday — but varying degrees of alarm — about the future of the U.S. economy.
The gloomier outlook came from Dimon, who said his worries have escalated since he warned in April about several “storm clouds on the horizon.” Those dangers include the aftereffects of fiscal stimulus, the Federal Reserve’s plans to reduce liquidity and Russia’s ongoing invasion of Ukraine.
“It’s a hurricane,” Dimon, the chairman and CEO of the country’s largest bank, warned Wednesday during the first day of the Bernstein Strategic Decisions Conference in New York City.
Bloomberg
“Right now it’s kind of sunny. Things are doing fine. Everyone thinks the Fed can handle this,” Dimon said. “[But] that hurricane is right out there down the road coming our way. We just don’t know if it’s a minor one or Superstorm Sandy or [Hurricane] Andrew. You better brace yourself.”
Wells Fargo’s Scharf was less pessimistic, telling conference attendees that while “there’s a reality that the economy has to slow,” the recession may not end up being “all that deep” compared with past downturns.
“While there will be some pain as you go through it, overall, everyone will be just fine coming out of it,” Scharf said.
While the two CEOs voiced differing levels of concern, their remarks also showed that big-bank executives are increasingly worried that some sort of slowdown is imminent.
Bank of America CEO Brian Moynihan and Morgan Stanley CEO James Gorman have also cautioned about the growing risk of a U.S. downturn, with Gorman saying at an event last month “it’s a 50-50 proposition.”
Fed Chairman Jerome Powell has maintained hope that the U.S. may achieve a “soft or softish landing” even as high inflation forces the Fed to raise interest rates and reduce the size of its nearly $9 trillion balance sheet.
“It’s a strong economy, and nothing about it suggests that it’s close to, or vulnerable to, a recession,” Powell said at a press conference last month. “Now, of course, given events around the world and fading fiscal policy effects and higher rates, you could see some slower economic activity.”
Scharf argued that a soft landing is “very difficult to achieve” for the Fed. But he also said consumers and businesses “are still extremely strong” today, which may help lessen the impact of a slowdown.
“We do expect the consumer and ultimately businesses to weaken, which is, you know, part of what the Fed is trying to engineer — but hopefully in a constructive way,” he said.
Consumer spending remains strong today, but it is rising at a slower pace and is being affected by inflation in fuel prices, food and other essential items, Scharf said. Corporations are still increasing their inventories, he said, adding that inflation and supply-chain issues are weighing on executives’ minds — as are rising employment costs and employee retainment challenges.
Wells Fargo has continued to see “fairly broad-based” loan growth across different types of customers, though it expects some moderation over time, Scharf said. The San Francisco bank has remained disciplined on its underwriting criteria and feels “good” about steps it’s taken to ensure its loan book remains healthy if the credit cycle turns, he added.
“We’re not chasing loan growth in this environment,” Scharf said. “We’re very careful about what could potentially come out there.”
Dimon agreed that credit quality remains solid, and said that the banking industry is in good shape overall. But he noted that “credit cycles follow a norm” and said “charge-offs will go up.” Loan growth is “pretty robust” this year, though JPMorgan may reduce what it holds on its balance sheet, he said.
It’s difficult to say which industries would be hit hard in a downturn, Dimon said. Unlike the financial crisis of 2008-9, it won’t be the mortgage sector, but it could be private credit markets, he predicted.
“I mean, when things happen, someone will get hurt somewhere, and sometimes it’s industries you just least expect,” Dimon said. “And so you have to be very careful in that.”
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