JPMorgan Chase's chief warned Thursday that markets have underestimated the chance the Federal Reserve will need to accelerate interest rate hikes. The Fed and other central banks "may have to take more drastic action than they currently anticipate - reacting to the markets, not guiding the markets," JPMorgan chief executive Jamie Dimon said in an annual letter to shareholders.
"I believe that many people underestimate the possibility of higher inflation and wages, which means they might be underestimating the chance that the Federal Reserve may have to raise rates faster than we all think," Dimon said in the annual epistle that also tackled trade policy, Brexit and firm succession, among other issues. Worries about faster Fed tightening have hung over US markets in 2018, along with rising tensions between President Donald Trump's administration and its counterparts in China and Europe over trade policy.
Dimon, who praised Trump's moves to cut taxes and curtail regulation, said there were many "legitimate complaints" on trade but cautioned against "miscalculations" by officials, adding that "this obviously creates higher risk and more uncertainty until resolved." In its dealings with China, Dimon urged the United States to "define, very clearly" what it wants, lay out a clear timeline with consequences for missed deadlines, "listen closely" to Chinese complaints and work with allies - especially in Japan and Europe. Dimon, who also serves as chairman of the Business Roundtable, appeared to criticize the Trump administration's unilateral approach on trade during a conference call with the lobby group last month. He said the right way to address trade was to "really think it through strategically with the allies and make sure we're doing the right thing and not doing these one-off things which tend to backfire." Dimon said the bank's ultimate plan on Brexit will depend on the final deal between Britain and the European Union but that it expects to move 300-400 jobs around Europe in the short-term. Dimon, who warned of an EU breakup in last year's shareholder letter, expressed greater optimism.
"Last year, we spoke about whether Brexit would cause the European Union to unravel or pull together - and it appears, particularly with the new leadership in France and the steady hand in Germany, that the countries might pull together," Dimon said. Dimon, 62, said he plans to stay chief executive for "approximately five more years," but that the firm has put in place "several highly capable successors." These included co-presidents Gordon Smith and Daniel Pinto, Chief Financial Officer Marianne Lake and Mary Erdoes and Doug Petno, who lead key divisions on asset management and commercial banking. Dimon was treated for throat cancer in 2014.
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