JPMorgan Chase CEO Jamie Morgan thinks that instead of transitory, a longer inflation period is in the works. This is why he says that cash will remain king for the time being. As a result, JPMorgan Chase is effectively stockpiling cash instead of using it to buy Treasuries and other investments.
Longer Inflation Period Means Fed Will Boost Interest Rates
Dimon believes that despite the reassurances of the Federal Reserve and the Treasury Department that higher prices will remain transitory, a longer inflation period is in the works.
With higher inflation, the Fed will need to raise interest rates. When that time comes, JPMorgan will have the money needed to buy higher-yielding assets.
“We have a lot of cash and capability and we’re going to be very patient because I think you have a very good chance inflation will be more than transitory,” Dimon said. “If you look at our balance sheet, we have $500 billion in cash, we’ve actually been effectively stockpiling more and more cash waiting for opportunities to invest at higher rates. I do expect to see higher rates and more inflation, and we’re prepared for that,” he added.
Editor's Inflation Warning: "Investors are woefully unprepared for what may be a once-in-a-generation shift in the market"
Fed Ignoring Inflation, Insists It’s Transitory
There is a healthy debate going on right now if the high prices the US currently experiences are temporary. The Fed insists that inflation is transitory, and is a result of the temporary effects of economic reopening. The surge in demand led to raw material shortages and supply chain disruptions.
However, many industry voices are growing concerned. Apart from JPMorgan, Deutsche Bank and a number of hedge funds are warning of dire consequences if a longer inflation period remains ignored.
Fed Might Hike Rates Earlier Than Expected
Meanwhile, Morgan Stanley CEO James Gorman said that he also agrees that a longer inflation period is looming.
Consequently, the Fed might hike rates earlier than planned. “The question is when does the Fed move? It has to move at some point, and I think the bias is more likely earlier than what the current dots suggest, rather than later,″ Gorman said.
Dimon said their move to hoard cash will account for nearly half of their net interest income decrease this year. The other half will come from lower credit card balances of customers. JPMorgan now expects $52.5 billion in net interest income from the $55 billion it predicted in February.
Banks Under Threat
Also, Dimon talked about other issues affecting the banking industry. He said that traditional banks are under threat from fintech and Big Tech players, which amassed larger capitalizations compared to US banks.
He said that JPMorgan’s automated investing service You Invest already collected $50 billion in assets. This is despite the fact that “we don’t even think it’s a very good product yet.”
Dimon also anticipates that JPMorgan’s second-quarter revenues will post lower numbers this year at around $6 billion. In contrast, last year was a bumper year for banks, including JPMorgan’s “exceptional” revenue last year.
Investment banking revenue is posting numbers that are 20% higher compared to a year ago. This means the bank is poised to report a strong quarter “based on strength in mergers advice and equity and debt issuance.”
Watch the Bloomberg Markets and Finance featuring JPMorgan AM’s Chow on Inflation Outlook:
Do you agree that inflation will take longer than what the Fed expects? Also, do you see prices still going higher even as economic recovery goes into full gear?
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