JPMorgan Chase, the largest bank in the United States, held its investor day event on Monday, where CEO Jamie Dimon answered questions from analysts and journalists. Despite market expectations of a rate hike pause, Dimon cautioned that people “should be prepared for rates going higher from here.” The billionaire banker also discussed the potential for commercial real estate to sour following concerns raised by Berkshire Hathaway’s Charlie Munger about the sector.
JPMorgan’s Jamie Dimon Discusses Souring Commercial Real Estate Sector
This week Jamie Dimon, the CEO and chairman of JPMorgan Chase, along with some of his colleagues, discussed the state of the U.S. economy during the bank’s investor day event. According to JPMorgan, the economy is “doing fine,” but a “mild recession” is still expected. In line with Charlie Munger’s warning to the Financial Times, Dimon expressed concern about commercial real estate, which could pose challenges for banks in the future.
Dimon stated, “There’s always an off-sides — The off-sides in this case will probably be real estate. It’ll be certain locations, certain office properties, certain construction loans. It could be very isolated; it won’t be every bank.”
A ‘Very Normal’ Credit Crunch
The multinational investment bank further announced that it still expects to earn $84 billion in net interest revenue. The bank is also making a big bet on artificial intelligence (AI). According to Bloomberg, the bank has already seen $1 billion “in business value” from its AI investments. Despite the profits, Dimon still expects a broad credit crunch, which he considers “very normal,” apart from commercial real estate factors.
The JPMorgan chief executive suspects the U.S. Federal Reserve will continue its strict monetary policy to curb inflation. According to Dimon, the federal funds rate could rise to as high as 6% or 7%. “I think everyone should be prepared for rates going higher from here,” Dimon remarked. However, Federal Reserve chairman Jerome Powell has hinted that the benchmark rate may not be raised at the upcoming Federal Open Market Committee (FOMC) meeting on June 14.
CME Group’s Fedwatch tool shows a low probability of a quarter-point rate hike next month, with 25.7% expecting an increase. It is also unclear who will succeed Jamie Dimon as CEO of JPMorgan Chase in the coming years. On Monday, journalists were inquisitive about Dimon’s exit and who will replace the influential banker. Banks are preparing for potential losses by holding onto capital, Dimon stressed on Monday. “You’re already seeing credit tighten up because the easiest way for a bank to retain capital is not to make the next loan,” Dimon stated.
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