- Jamie Dimon, David Solomon, and Ray Dalio warned of a cash crunch this week.
- Dimon and Solomon flagged the danger of a US recession and a stoop in shopper spending.
- Dalio underlined how rising rates of interest might squeeze cash-strapped, debt-ridden governments.
Jamie Dimon, David Solomon, and Ray Dalio have sounded the alarm on a cash crunch, a looming US recession, and the Russia-Ukraine battle.
The three Wall Street legends spoke on the Future Investment Initiative in Saudi Arabia on Tuesday. Here are the highlights.
Jamie Dimon, CEO of JPMorgan
Dimon mentioned the US economic system stays wholesome, but it surely faces several near-term headwinds that would tip it into a recession.
The JPMorgan chief cautioned that households — that are being squeezed by rising costs, mortgage prices, and credit-card funds — are prone to exhaust their financial savings by the summer time.
“American consumers — eventually the excess money they have is running out,” he mentioned. “That will probably happen sometime mid-year.”
However, Dimon emphasized the Russia-Ukraine battle is much extra worrying. The invasion shattered the phantasm of worldwide peace, and has exacerbated US-China tensions and different geopolitical issues, he mentioned.
“The relationships of the Western world — that would have me far more concerned than whether there’s a mild or slightly severe recession,” Dimon mentioned.
The financial institution boss added that Russian President Vladimir Putin’s threats of nuclear warfare have raised the prospect of catastrophic fallout.
“This nuclear blackmail is probably the worst thing that we’ve seen in our lifetimes,” he mentioned.
David Solomon, CEO of Goldman Sachs
Solomon underscored how troublesome will probably be for the Federal Reserve to curb hovering costs with out choking progress.
“Generally, when you find yourself in an economic scenario like this, where inflation is embedded, it’s very hard to get out of it without a real economic slowdown,” he mentioned. “The US is most likely going to have a recession.”
The Goldman chief mentioned he expects the Fed to proceed mountaineering charges to 4.5%, from a vary of three% to three.25% right this moment, then pause to see whether or not the inflation risk recedes. If mixture demand stays robust and the labor market would not soften, officers on the US central financial institution might raise charges even larger, he recommended.
“If they don’t see real changes in behavior, my guess is they’ll go further,” he mentioned.
Solomon identified that between the Nineteen Eighties and the spring of this 12 months, the Fed saved charges low, scooped up authorities bonds, and did not fear about inflation. A sudden tightening of its financial coverage was at all times going to be jarring, he mentioned.
“We’re now in the process of unwinding a multi-decade period, and there are consequences to that,” he added.
Ray Dalio, founding father of Bridgewater Associates
Dalio outlined how cash-strapped governments loaded up on debt whereas cash was low cost and plentiful, however now rising charges are rising their borrowing prices and threatening to plunge them into fiscal crises.
“Now an interest rate that is high enough to deal with inflation, and also high enough to provide an adequate return for the bond investor, is too high of an interest rate for the debtor,” he mentioned.
The Bridgewater founder described Britain’s recent market meltdown as a “canary in the coal mine.” That suggests he expects different international locations to strive preventing inflation with larger charges, whereas additionally shoring up progress by way of debt-funded spending. However, the UK’s expertise reveals that strategy can spook buyers, spark liquidity and leverage points, and spur emergency interventions from central banks.
Dalio additionally touched on how a US recession might materialize. He predicted larger yields on super-safe authorities bonds would sap demand for riskier belongings equivalent to junk bonds. Moreover, tighter monetary circumstances would depart shoppers, firms, and different entities wanting cash inside the subsequent few years, he mentioned.
A flight to haven belongings, coupled with a liquidity crunch, would doubtless drag down monetary markets and weaken financial progress.
“The dominoes are falling in a very classic way,” Dalio mentioned.