Jamie Damon, CEO of investment bank JP Morgan, warned today that the US economy will experience a “hurricane” due to the actions of the US Federal Reserve and the war in Ukraine.
Damon said he is preparing the largest U.S. bank for an economic hurricane, and advises investors to do the same.
“I used to say there were storm clouds but I’m going to change that – this is a hurricane,” Damon said at an economic conference in New York. “Although the conditions look fine at the moment, no one knows if the hurricane will be as small or huge as a Sandy storm. You better prepare yourselves.”
“Right now, the weather is sunny, things are going on as usual, everyone thinks the Federal Reserve can handle the problems. But this hurricane is out right now, down the road, and it’s coming to us.”
Damon is concerned about two things: The first is the reduction of the Fed’s balance sheet, a move that the bank began today (after announcing it last month, as part of the interest rate hike), and will reach a rate of $ 95 billion a month in September. The balance is reduced in two ways: the sale of the bonds in the balance sheet and the cessation of the use of the amount due from redeemed bonds for the purpose of purchasing new bonds.
“We have never had such a monetary reduction, it is something that will be written in our history books,” he said. He noted that the central bank “does not have many choices, as there is too much liquidity in the market. They need to eliminate some of this liquidity in order to stop speculation, lower apartment prices and more.”
JPMorgan CEO noted that during the 2008 financial crisis, central and commercial banks as well as forex trading firms purchased U.S. bonds – however these three players now have no ability or desire to purchase such bonds. “I do not know what the effect will be – but I am preparing, at the very least, for huge volatility,” he said.