According to CoinDesk, JPMorgan CEO Jamie Dimon has expressed concerns that the global economy may not be ready to face the worst-case scenario of the U.S. interest rate rising as high as 7% with stagflation. Since March 2022, the U.S. Federal Reserve (Fed) has raised the benchmark borrowing cost by 525 basis points to the 5.25%-5.5% range to tame inflation, which was partially responsible for last year's crypto market crash.
Dimon believes that the Fed may have to keep raising rates to subdue persistent inflation, and impending upticks in the borrowing cost will likely be more damaging to the global economy. He stated that going from zero to 5% caught some people off guard, but no one would have taken 5% out of the realm of possibility. However, he is unsure if the world is prepared for 7%.
A 7% interest rate with stagflation or persistent high inflation and joblessness would increase the risk of the U.S. economy falling into a recession, an undesirable outcome for risk assets like technology stocks and cryptocurrencies. Additionally, continued tightening would lift the already elevated U.S. Treasury yields to multi-decade highs, making bonds more attractive and potentially draining capital from risky investments. Dimon's comments contradict the popular view that the Fed's tightening cycle has peaked, as the central bank has said it intends to keep borrowing costs higher for longer.
