Q. What’s your assessment of the U.S. economy, and how likely or unlikely it is that we are in recession or headed for recession?
A. The economy is doing pretty well, but there are storm clouds ahead. The good news is that we have healthy consumers, employment, higher wages, good credit, an increase in home values over the last 10 years, a recovering supply chain, normalized interest rates and a healthy business sector. The storm clouds ahead are abnormal fiscal spending and quantitative tightening by the Fed. Consumer excess savings will be close to zero by year end. We continue to have possible persistent inflation, requiring higher interest rates. Add to that the war in Ukraine, energy and trade uncertainty – including issues with China. The geopolitical tensions create additional risk.
I hope that everything turns out OK and that all of these storm clouds peacefully dissipate – we should be prepared for that outcome and also prepared for a new and uncertain future.
Q. What are the key indicators that you’re watching in the months ahead and why are they so important?
A. Interest rates, inflation, the Fed reducing its balance sheet through quantitative tightening, the yield curve, fiscal spending, debt ceiling, consumer spending and savings, among many others. There isn’t anything definitive about what we have seen – just weight on the scale.
Q. Are the banking sector issues, evidenced by the failure of Silicon Valley Bank and others, more reflective of management issues unique to certain entities or are you concerned the sector itself has significant risk moving ahead?
A. The banking system is safe, with extraordinary liquidity and extraordinary capital. The issues at those institutions were hiding in plain sight. Everyone knew about uninsured deposits, interest rate exposure and held-to-maturity portfolios. We aren’t seeing the issues that happened there at other regional banks.
Q. When Silicon Valley Bank failed, the government essentially guaranteed that no depositors would lose access to their deposits, even those with levels far higher than would normally be guaranteed. Is there a chance that kind of action could make some feel like they are operating in a risk-free environment with few consequences?
A. Any regulatory action needs to be thoughtful toward a view of its impact on the entire system. I am in favor of raising deposit insurance limits to help community banks, but policymakers should take a holistic view of the impact that raising limits would have among insured financial institutions and the non-bank financial sector. We should be mindful of any unintended consequences.
Q. What’s JPMorgan’s view on the most beneficial balance between government regulation of banking and the need for financial institutions to reduce risky behavior?
A. We are all for proper regulation. Oftentimes with a crisis, we see knee-jerk, whack-a-mole or politically motivated responses that often result in achieving the opposite of what people intended. Now would be the time to deeply think through and coordinate complex regulations to accomplish the goals we want, eliminating costly inefficiencies and contradictory policies. Very often, rules are put in place in one part of the framework without appreciating their consequences in combination with other regulations.
America has had, and continues to have, the best and most dynamic financial system in the world – from various types of investors to its banks, rule of law, investor protections, transparency, exchanges and other features.
Q. Capitalism has plenty of critics today and some see it as a threat to democracy. How would you describe your view on the positive relationship between the two?
A. Capitalism and democracy are intertwined. Democracy and human freedom are inseparable from freedom of speech, freedom of religion and free enterprise. I am a red-blooded, full-throated, free market, free enterprise capitalist. We should applaud free enterprise.
The health of America is the strength of its people, including human capital, brain power, its capability, its capital markets. We have the widest, deepest, most transparent capital markets the world has ever seen. Our success allows us to use our capabilities to lift up communities in multifaceted ways.
