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'Brace yourself': Jamie Dimon warns of a coming economic hurricane that will require preparation as the Fed shrinks its balance sheet

·2 min read
Jamie Dimon, the chief executive of JPMorgan.
Jamie Dimon, the chief executive of JPMorgan.Misha Friedman/Getty Images
  • JPMorgan CEO Jamie Dimon warned of a coming economic "hurricane" that requires preparation.

  • Dimon said JPMorgan is positioning its balance sheet very conservatively in case a recession occurs.

  • "You know, I said there's storm clouds but I'm going to change it... it's a hurricane," Dimon said.

An economic hurricane is on the horizon, JPMorgan CEO Jamie Dimon said at a Bernstein conference on Wednesday.

"You know, I said there's storm clouds but I'm going to change it... it's a hurricane," he said, adding that the potential for an imminent economic recession requires preparation by banks.

For JPMorgan, that preparation includes conservatively positioning the bank's balance sheet to be ready for any economic shock.

"You better brace yourself. JPMorgan is bracing ourselves and we're going to be very conservative with our balance sheet," Dimon said.

The warning comes just weeks after he gave lighter comments that just a storm was brewing, and that it could potentially clear up quickly. That earlier forecast helped boost investor optimism and even JPMorgan's stock price last month.

But Dimon did leave room in his comments on Wednesday that the coming economic hurricane can have varying degrees of impact.

"Right now, it's kind of sunny. Things are doing fine. Everyone thinks the Fed can handle this. 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 Andrew or something like that," he said.

Dimon is a meteorologist of sorts when it comes to the US economy, given that his stewardship of the largest bank in the country provides him with a real-time pulse on the health of both consumers and small businesses.

What is likely giving Dimon pause for concern, aside from persistent inflation, is the Fed's quantitative tightening program. That includes interest rate hikes and a reduction of its $9 trillion balance sheet, which begins today as the Fed is on pace to roll off tens of billions of dollars worth of Treasury and mortgage-backed securities each month.

The Fed's balance sheet reduction program removes liquidity from financial markets, which could lead to heightened market volatility as investors have been conditioned to expect ample Fed-driven liquidity since the depths of the financial crisis in 2008.

But preparation, akin to JPMorgan's conservative balance sheet positioning, could help investors weather the economic storm Dimon sees materializing.

Read the original article on Business Insider