Jamie Dimon says ‘prepare’ for an economic hurricane caused by the Fed’s war with Ukraine

Jamie Dimon, CEO of JP Morgan Chase, appears on CNBC’s Squawk Box during the 2020 World Economic Forum in Davos, Switzerland on January 22, 2020.

Adam Galica | CNBC

JPMorgan Chase CEO Jamie Dimon says he’s preparing America’s largest bank for an economic hurricane on the horizon and advising investors to do the same.

“You know, I said there were storm clouds but I’m going to change it…it’s a hurricane,” Dimon said Wednesday at a financial conference in New York. While conditions appear “good” at the moment, no one knows if the hurricane is “a minor hurricane or Superstorm Sandy,” he added.

“You better get ready,” Dimon told the room full of analysts and investors. “JPMorgan is preparing and we are going to be very conservative with our balance sheet.”

Dimon is worried about two main factors: first, the Federal Reserve has announced that it will cancel its emergency bond buying programs and reduce its balance sheet. The so-called quantitative tightening, or QT, is expected to begin this month and will increase by up to $95 billion per month in reduced bond holdings.

“We’ve never had a QT like this, so you’re looking at something you could write history books about for 50 years,” Dimon said. Several aspects of quantitative easing programs “backfired”, including negative rates, which he called a “huge mistake”.

Central banks “have no choice because there is too much liquidity in the system,” Dimon said, referring to the tightening measures. “They have to take some of the cash out to stop speculation, reduce house prices and stuff like that.”

The other big factor that worries Dimon is the war in Ukraine and its impact on basic commodities, including food and fuel. Oil “nearly needs to go up in price” due to disruption from Europe’s worst conflict since World War II, potentially hitting $150 or $175 a barrel, Dimon said.

“Wars turn out badly, [they] going south with unintended consequences,” Dimon said. “We are not taking the appropriate measures to protect Europe from what will happen to oil in the short term.

“Huge Volatility”

Last week, at an investor conference for his bank, Dimon discussed his economic concerns as “stormy clouds” which could dissipate. Presentations from Dimon and his deputies at the day-long meeting bolstered JPMorgan’s stock by providing more investment details and updated interest income figures.

But his concerns appear to have since worsened.

During the response to the 2008 financial crisis, central banks, commercial banks and exchange firms were the top three buyers of US Treasuries, Dimon said. Players won’t have the ability or desire to absorb that many US bonds this time around, Dimon warned.

“It’s a huge shift in the flow of funds around the world,” Dimon said. “I don’t know what the effect will be, but I’m prepared, at a minimum, for huge volatility.”

“I hate the word unprecedented,” Dimon said. “You have to put that in the back of your mind, when we’ve seen things that have never happened before… you have to question your ability to predict” the results.

This story is developing. Please check for updates.