JPMorgan Chase CEO Jamie Dimon: The shadow of "stagflation" reappears, and tariff issues should be resolved as soon as possible

As the market reacts strongly to Trump's new tariff policy, one of Wall Street's most influential voices has issued a clear warning.

On Monday local time, JPMorgan Chase CEO Jamie Dimon candidly stated in his annual letter to shareholders that Trump's tariff measures will not only drive up inflation in the United States but will also drag down economic growth, potentially triggering a 1970s-style "stagflation" crisis.

"Whether the tariff menu will lead to a recession remains in doubt, but it will certainly slow economic growth," Dimon warned in his 58-page letter. The banking "godfather" pointed out that the uncertainty brought by tariff policies will have a cumulative effect, and the sooner it is resolved, the better, as some negative impacts will accumulate over time and become difficult to reverse.

In the short term, we may see inflation results, not only from imported goods but also from domestic prices, as input costs rise and demand for domestic products increases.

Stagflation Risk: The Tug-of-War Over Interest Rates and Ominous Echoes from the 1970s

Dimon is concerned that Trump's tariff policy could significantly raise inflation rates in the United States. He wrote:

Although inflation has decreased, what I see for the future is mostly inflationary factors: persistent high fiscal deficits, militarization of the world, infrastructure investment needs, including the green economy, and the restructuring of trade and tariffs.

Dimon even mentioned "stagflation," believing there is a "tug-of-war" between economic growth and inflation, ultimately leading to rising long-term interest rates.

This tug-of-war may last for a while, but we should remember that during the stagflation of the 1970s, recession did not stop the inevitable upward trend of interest rates.

All else being equal, the slower the growth, the lower the interest rates; the higher the inflation, the higher the interest rates.

Dimon also stated that part of the reason for U.S. economic growth is the massive government spending, leading to huge deficits. He wrote:

These huge deficits are unsustainable—I don't know if they will cause real problems in six months or six years—but the sooner we address this issue, the better.

As always, Dimon called for the elimination of the U.S. debt ceiling. He wrote that the debt ceiling is essentially a "weapon of mass destruction" that politicians who do not understand its dangers may misuse.

Stock Market Bubble Warning: Soft Landing Assumption is Too Optimistic

Dimon issued a clear warning about the U.S. stock market, believing that stock valuations remain too high and the pain may not be over yet.

By any measure, stock valuations are still well above historical averages. The market seems to be pricing assets based on the assumption that we will continue to achieve a relatively soft landing. I am not so sure about that.

After the announcement of Trump's tariff plan, Wall Street experienced a severe sell-off, with the S&P 500 index plummeting 9.1% last week, and the Nasdaq falling 10% and entering a bear market. Bank stocks were also hit hard, as investors worried that an economic recession would lead to reduced lending and trading activity.

JPMorgan Chase Strategy: Holding Extra Capital and Liquidity

As the leader of the world's largest bank, Dimon explained JPMorgan's strategic response.

After reading the first part of this letter regarding the state of the world and the numerous risks facing the global economy, we hope you understand why we believe now is a good time to retain a significant amount of extra capital and liquidity.

JPMorgan will announce its first-quarter results this week. In 2024, JPMorgan set a record for the highest annual profit in U.S. banking history, with net income reaching $58.5 billion, up from $49.6 billion the previous year. As of early April, the company's stock price has risen about 6% from last year, trading at approximately $210 per share.

For investors, Dimon's letter conveys a clear message: in the context of uncertainty surrounding Trump's tariff policies, it is crucial to manage risks cautiously and prepare for a more challenging economic environment.

Risk Warning and Disclaimer

The market carries risks, and investments should be made cautiously. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article align with their specific circumstances. Investing based on this is at one's own risk