JP Morgan CEO Jamie Dimon has warned that one big problem remains despite his belief that President Donald Trump’s “One Big, Beautiful Bill” will “stabilise things.”
The 69-year-old said it was necessary to prepare for “a full range of outcomes,” but that “there’s a chance that […] you’ll have stagflation”.
The toxic combination of still-high inflation and a weak or stagnant economy is often referred to as “stagflation,” a term that haunts central bankers. It is what bedeviled the United States in the 1970s, when even deep recessions didn’t kill inflation.
Should stagflation emerge, the Fed will have to deal with it because policymakers typically lift rates, or keep them high, to combat inflation. Yet if unemployment also rises, the Fed would usually cut rates to reduce borrowing costs and lift growth.
Trump’s divisive bill passed the House of Representatives by the slimmest of margins early Thursday morning following the president’s aggressive pressure campaign.
The vote for the tax bill, which includes major changes to Medicaid, rolling back renewable energy tax credits passed under Joe Biden’s presidency, and making deeper spending cuts, passed by a 215-214 majority.
“I think they should do the tax bill,” Dimon said in a Bloomberg Television interview from the lender’s Global China Summit in Shanghai on Thursday.
“I do think it’ll stabilise things a little bit, but it’ll probably add to the deficit,” Dimon continued.
The CEO was quizzed on the U.S. economy’s struggles with geopolitics, deficits, and price pressures.
“The U.S. is running the largest trade deficit that we’ve ever had in peacetime, almost 7% of GDP. And how would the tax bill get done? Well, we will probably add a little bit to that,” Dimon continued.
“I still think it’s better that we get certainty around the tax bill. I’d rather get that done”.
However, Dimon said he was not fully optimistic about the economy’s future.
“But I do think at one point Americans do [need] to attack its deficit problem,” he added.
The CEO proposed that the solutions for this included having “proper policies around incentives and growing business”.
The dollar dipped in value unexpectedly last month when Trump unveiled his widespread tariffs. At the same time, treasury bond yields rose, indicating that international investors may have been dumping American assets as their confidence in the country’s governance and economy eroded.
“I don’t agree that we’re in a sweet spot,” Dimon added.
Dimon said the U.S. Federal Reserve was doing the right thing by holding off on deciding on monetary policy.
Earlier this month, the Federal Reserve decided to hold interest rates steady but warned that the risks of higher inflation and unemployment had risen. This further clouded the U.S. economic outlook as policymakers grappled with the impact of Trump’s tariffs.
“I think the chance of inflation going up and stagflation is a little bit higher than other people think,” Dimon had previously said.
The Associated Press and Reuters contributed to this report.
