Jamie Dimon: A "Storm is Brewing" in the US Economy

Will have other consequences possibly down the road, you know, called inflation, which may not go away like people expect. So when I look at the range of possible outcomes, you know, you can have that soft landing. I'm a little more worried that it may not be so soft, and inflation may not quite go away, people expect. I'm not talking about just this year, I'm talking about '25 and '26. The rates may have to go up a little higher. I'm talking about the 10-year rate, the five-year rate, and you know, that can have consequences. So we'll see.

Billionaire Jamie Dimon is warning that serious storm clouds are forming in the U.S. economy. If you're looking to safeguard your financial future, understanding what Dimon sees could mean the difference between staying afloat or sinking.

Now there is a narrative forming in the media and elsewhere that America has officially pulled off the elusive so-called economic soft landing, successfully raising interest rates to tame inflation without plunging the economy into a deep, dark recession. But not so fast, says Jamie Dimon. Dimon’s seat as CEO of JP Morgan Chase, the largest bank in the United States, gives him a truly unparalleled look into the economy. Unfortunately, Dimon is worried about what he is seeing.

Take a listen to what he had to say.

"Jamie Dimon, thank you very much for sitting down with us today. I spend a lot of time this weekend reading your letter, and my biggest takeaway from it was that you have a very clear sense of what's good for America, what's good for the economy, and what's good for JP Morgan. What is the biggest threat in your mind to that confident vision?"

"So every year when I write that letter, I try to think of what are the most important things I would add to that. The free western world, because that’s what worries me the most—is that, you know, the Ukraine war, the terrorist activities in Israel, you know, the thread that’s drawing between Russia, Iran, North Korea, China, the difficulties of our relations with China. That whole thing is challenging what, you know, we would call the free democratic western world, and that to me is the most important thing that we get all of that right."

"Well, I want to come back to the geopolitical backdrop in a minute, but right now I want to focus specifically on the economy. Right? As the chief exec of America’s biggest bank, you have an unrivaled insight into the financial health of the U.S. consumer. What are people doing with their money right now?"

"You have to look a little bit in context. The consumer is in pretty good shape right now. Unemployment under 4% has been there for two years. They still have excess money from Covid. If you go back to looking at the amount of money that was spent during Covid, it was $6 trillion. That basically went into consumer pockets through various means and various programs. They’re still spending it down. If you look at the bottom 50% of income, they pretty much spent the excess, so they’re kind of back to where they were. The top 50% still has excess; housing prices are up, stock prices are up, jobs are plentiful, wages are finally going up."

"The lower-end consumers are in pretty good shape. Because of that, businesses are in pretty good shape too because people spend—it creates profits. The one thing you got to be cautious about— a lot of it was driven by just fiscal spending, so even today, the deficit of 6% of GDP, you know, almost $2 trillion—that's driving a lot of this growth. And that will have other consequences possibly down the road, you know, called inflation, which may not go away like people expect. So when I look at the range of possible outcomes, you know, you can have that soft landing. I'm a little more worried that it may not be so soft and inflation may not quite go away like people expect. I'm not talking about just this year, I’m talking about '25 and '26. The rates may have to go up a little higher. I'm talking about the 10-year rate, the five-year rate, and you know, that can have consequences."

"But right now, you describe a pretty rosy picture, and yet we know consumers aren't feeling it. Why this disconnect?"

"Yeah, well, you have to look at different consumers here. So the bottom 20% of America have not done particularly well over the last 20 years. Incomes barely went up—they're actually starting to go up for the first time in almost 20 years. Remember, enal crime inflation; there are a lot of negative effects. Some people can’t get mortgages, can’t buy the home. Their jobs are still paying, you know, I think 25% of the jobs in America pay $15 an hour or less. So yeah, there's part of society who's kind of struggling, part of society who's not. And I think that's a different issue about how we deal with a policy."

"But you can see why that has people upset, and then you see a whole bunch of other things that, you know, people look at in the world—they're worried about geopolitics, they’re worried about politics, they’re worried about polarization. So you have a disconnect about, you know, the economy."

"As you said, confidence levels on many major metrics—the U.S. economy is incredibly strong. Gross Domestic Product, or GDP for short, is a measure of the size and health of the economy. As you can see here, GDP continues to grow at a healthy and steady rate. Additionally, the unemployment rate is at just 3.9%, well below the long-term average of closer to 6%. Household wealth is at an all-time high as the stock market and home values continue to soar. All of these numbers would seemingly point to a strong and vibrant economy. However, if you ask the average everyday American, most of them would tell quite a different story.

As shown in this chart, U.S. consumer confidence is hovering around its lowest levels in over a decade. What the economic data is showing and how many U.S. consumers are feeling doesn’t seem to match up, and there’s a reason for this. As Jamie Dimon explained in that clip, there is a tale of two Americas forming. On one side, you have people and families with high incomes that own large amounts of assets—think stocks, real estate, and businesses. On the other end of the spectrum, you have lower-income workers, people that tend to rent and don’t own significant amounts of financial assets. Each year, it seems like the people somewhere in the middle—the middle class—gets smaller and smaller.

This so-called narrowing out of the middle class has been a trend dating back decades, but it surely seems to have increased over the last few years. To demonstrate what I mean, let me tell you a quick story.

Meet Adam and John. Both Adam and John live in the same town, are the same age, and actually work for the same large publicly traded company. However, that is where the similarities start to end. You see, Adam is a software engineer for the company—a very highly compensated career. Over the last several years, Adam has seen his wages increase significantly, even after adjusting for inflation. As part of Adam’s compensation, he also receives what is known as equity—a small ownership stake in the company. Since the company he works at is publicly traded, that takes the form of shares in the company traded on the stock market. Adam’s employer also provides him with a generous retirement program, the proceeds of which are invested in the stock market to eventually be able to fund a comfortable retirement for Adam. Additionally, Adam was able to buy a house in 2019. Very importantly, this was when mortgage rates were low and before home values really started to skyrocket.

Compare Adam’s situation to that of John. John is employed by the same company as Adam; however, John is not a software engineer. Instead, he is the manager of the cafeteria located in the office building. In recent years, John has seen his wages increase; however, these wage increases have not kept pace with the historically high levels of inflation the country has experienced. This means, after adjusting for the impacts of inflation or, as economists like to say, in so-called real terms, John has actually seen his wages decrease over the last few years.

As a blue-collar worker, John's compensation does not include stock in the company. Additionally, he does not receive any retirement benefits. As a result, John owns little, if any, stocks. Unfortunately for John, he wasn't able to buy a house before home values and interest rates increased dramatically. As a result, he is renting an apartment. The story of Adam and John represents a tale of two Americas in today’s economy.

Yes, headline numbers, like GDP and unemployment rates, look really good on the surface; however, not everyone is benefiting. Take the stock market being at record levels as an example. Through being awarded shares in his company as part of his pay and in his retirement account, Adam owns a substantial amount of stocks. As the stock market continues to hit all-time highs, Adam is seeing his net worth increase as a result. On the other hand, John doesn’t own any stocks, so he isn’t benefiting from the soaring stock market.

If you want to be more like Adam and less like John, it's a good idea to own stocks. However, not all types of businesses thrive during high inflationary environments. Take capital-intensive companies—these are firms that require high amounts of reinvestment to produce their goods and services. Capital-intensive industries suffer in high inflationary environments because rising prices significantly increase the costs of long-term investments, maintenance, and financing. Higher interest rates also raise borrowing costs, further straining profitability during times of higher inflation.

It's generally better to invest in non-capital-intensive industries. To help you with this search, we've compiled a list of industries that are both capital intensive and non-capital intensive. Click on the link in the description below to access your free copy now.

Okay, back to Adam and John. Things get even worse when you consider the housing situation. Adam bought his house before prices and interest rates skyrocketed. He is one of the estimated roughly 60% of homeowners with a mortgage interest rate below 4%. Adam has locked in his mortgage payment for 30 years, meaning soaring home prices and rents have had little impact on his monthly budget.

John, on the other hand, is a renter. He has seen his monthly rent increase dramatically in recent years. As you can see here, the median U.S. rent was around $1,600 in 2019; that is now north of $2,000—an increase of over 25%. As you can see in the story of Adam and John, here for many people, the economy is worse than the numbers would indicate. And as you’re about to hear from Jamie Dimon, it doesn’t seem like any relief is on the horizon.

"So just to go back to the soft landing, in the letter you conceded you were on the hawkish side, but then things played out in a more benign fashion. But you still sound like it's a slightly begrudging concession; you yourself sound quite glum in the letter. Can you tell us a bit more about why that is?"

"I'm not looking at a year, and I'm not making a forecast. I'm trying to say what are the range of possible outcomes, and last year and this year I would put out the same issues: huge amount of fiscal deficit, huge amount of QE—we don’t really fully know the consequences yet. Part of it might be inflation; a lot of things in the future inflationary—the green economy, the remilitarization of the world—obviously the deficits which, you know, basically are going to go away as far as the eye can see. And so it puts me in this on the—and geopolitics—all that puts me on the side of caution that things may not go as well as people expect."

"Again, that's not a '24 forecast'. I think I said in my letter the odds of a soft landing—the market kind of prices in 70%—I think it’s half of that. Therefore, the odds of something different, you know, is 65%, et cetera. And so, you know, we’ll see. But I don’t really know. You know, as a business person, I try to be prepared for all of that, just a little cautious. It looks a little bit more like the '70s to me. And I point out to a lot of people, things looked pretty rosy in 1972; they were not rosy in 1973. So don’t get lulled into a false sense of security because today is going to be okay; tomorrow is going to be okay. So just trying to separate the two."

The most pressing issue that’s faced the U.S. economy over the last few years has been inflation. As you can see in this chart here, until the last couple of years, inflation had not been a problem in the U.S. for decades—that had been especially true over the last 10 to 15 years. During this period, inflation was routinely well below 2%. Inflation had remained so low for so long that there were even some economists that believed inflation was something that the U.S. and its government and policymakers would never have to concern themselves with again. But, oh boy, were they wrong. Inflation had a peak of over 9.1% in the summer of 2022.

In an attempt to get inflation back under control, the U.S. Federal Reserve, led by Jerome Powell, had to take dramatic steps. This included raising interest rates at one of the fastest paces in the history of the country, creating a concern that this swift action would send the U.S. economy into a deep and dark recession.

To truly understand Jamie Dimon’s comments from earlier, you first have to understand what causes inflation. According to economics, inflation happens when there is too much money chasing too few goods. Put another way, when there is more demand than supply, prices rise. Here is a simplistic example to demonstrate this:

This line here represents the supply available of a particular good or service. For the sake of this example, let’s say we’re talking about used cars. So in this case, our line here represents the number of used cars available to be purchased at any given time. This line here is our demand line. Our demand line represents the number of buyers looking to purchase that particular good or service. Additionally, and this is a very important distinction, it also represents how much these buyers are willing and able to spend on that purchase.

That point at which these two lines cross is the price for the good or service. So in our case, the price of a used car. During 2020, the supply of used cars decreased as car companies had supply chain issues and weren’t able to manufacture as many new vehicles. As a result, people held on to their vehicles longer, limiting the number of used vehicles for sale. This dynamic caused our supply line to get pushed out to the left. At the same time, consumers were flushed with cash, and historically low interest rates made it cheap to borrow money to buy a car. This meant buyers could afford to pay more for a car.

This higher demand is demonstrated by our demand line here, moving to the right. Notice now how our supply and demand lines now cross at a higher point? This is inflation in action. To get inflation under control, the U.S. Federal Reserve had to try to attempt to weaken demand and get our supply and demand lines back in balance. Their primary tool to try to accomplish this goal is by raising interest rates.

You see, interest rates have a huge impact on the economy. Low interest rates are like adrenaline that can provide a stimulative shock to the economy. When interest rates are lowered, it becomes cheaper and easier for both businesses and consumers to borrow money. For businesses, this means that projects that were only slightly unprofitable before now become worthwhile. For example, suppose a company has a project that would yield a 4% return, but borrowing costs were at 5%. At that interest rate, the project wouldn't make sense because it would lose the company money as the cost of borrowing is higher than the project return.

However, if interest rates dropped to 3%, that same project would now make a profit, encouraging the company to invest, hire more workers, and boost economic activity. Similarly, lower interest rates mean consumers can afford to borrow more for major purchases like homes and cars, as well as refinance existing loans to free up cash. This increased consumer spending stimulates demand, which in turn drives economic growth.

When interest rates are low and economic activity is high, inflation can be stimulated due to several factors. First, with lower borrowing costs, consumers have more money to spend, which increases demand for goods and services. This surge in demand can drive up prices, especially if the supply of those goods and services cannot keep pace.

Businesses also benefit from lower interest rates because it becomes cheaper to finance expansion projects. Companies invest more in equipment, raw materials, and additional workers, which raises the demand for resources and labor. This increased demand can lead to higher costs, which businesses often pass on to consumers in the form of higher prices. More low interest rates tend to drive investment into assets like stocks and real estate, inflating their prices. As these asset prices rise, people feel wealthier and spend more, further increasing demand and putting upward pressure on prices.

Higher interest rates do the opposite and are like giving the economy a sedative—they slow things down and hopefully help return the economy to a more normal level. But this creates a tough balancing act for the Fed. They want to increase interest rates enough to slow demand and curb inflation; however, they don't want to raise them too much and push the economy into a recession.

So far, it appears the Fed has been able to walk this tightrope successfully. Inflation has come down significantly as of late. Additionally, the economy continues to remain resilient on many important metrics. However, why is Jamie Dimon warning that it’s too early to call it a success? This is because the inflation fight is not yet over. The most recent inflation reading was 3.5%. Yes, this is much improved from the 8 or 9% peak, but it’s still well above the Fed’s target inflation rate of 2%. If inflation continues to remain elevated, the Fed will have to continue to keep interest rates elevated, and likely eventually this will start to cause cracks in the economy.

Only time will tell how things will ultimately play out; however, according to Jamie Dimon, there are reasons to be concerned. If you made it this far in the video, it is obvious you are serious about learning what’s happening in the economy. Make sure to check out this video here because legendary investor Warren Buffett talks about the trillion-dollar storm brewing in the real estate market. The video has over 5 million views, so you definitely don’t want to miss it. I'll see you over there.