Jamie Dimon named two forces that could tip the U.S. economy over: stubborn inflation and shrinking household spending power. “Those things might very well derail the economy and cause this mild to hard recession that people are worried about,” the JPMorgan Chase chief executive told CNBC.
Reuters reported that heads of the biggest American banks spent Tuesday sketching a harder 2023. Dimon conceded that consumers and companies are in good shape for now. He doubted it would stay that way for long.
Savings and the Fed
Households are holding $1.5 trillion in excess savings left over from pandemic stimulus, Dimon said, and the pile could be gone by mid-2023. He also sketched a path for the Federal Reserve: raise the benchmark rate to 5%, then sit still for three to six months. Even that, he said, might “not be sufficient” to bring high inflation under control.
The Fed’s most recent move was a 75 basis point increase in November, its fourth in a row, which put the range at 3.75%-4%. The central bank also indicated it hoped to move to smaller steps as early as its next meeting.
Bank shares slide
Bank stocks sold off the day after the executives laid out those risks. Bank of America dropped more than 4%. Goldman Sachs and Morgan Stanley each lost more than 2%, and Citigroup slid more than 1%.
At a financial conference run by Goldman, Bank of America CEO Brian Moynihan told investors his bank’s own research points to “negative growth” early in 2023. The contraction, he said, will be “mild.” For the fourth quarter he expects investment-banking fees to fall 55% to 60% from a year earlier, while trading revenue climbs 10% to 15%.
Goldman CEO David Solomon spoke at the same event. “Economic growth is slowing,” he said. “When I talk to our clients, they sound extremely cautious.”
Jobs: tight, and shrinking
Hiring in banking has not gone slack, Solomon said. He called the job market “surprisingly tight” and the scramble for talent “as tough as ever.”
Cuts are happening regardless. A person familiar with Morgan Stanley’s plans said the firm has trimmed about 2% of its workforce, roughly 1,600 positions, a step CNBC reported first. Goldman and Citigroup had already shed staff.
BlackRock, the world’s largest asset manager, has frozen hiring outside critical roles, Chief Financial Officer Gary Shedlin said. “We’re trying to be a little more prudent,” he said.
