Industry Updates

Jamie Dimon warns of 7% US interest rates

The question in lieu is should investors do the same?

Rob Isbitts

US dollar inflation

Jamie Dimon, the longtime CEO of JP Morgan, has said the world is not ready for 7% interest rates.

With US Treasury bills and the fed-funds rate in the 5.5% range, the implication from Dimon is the first 11 rate hikes from the Federal Reserve have had some impact on consumer and the markets, however, the worst damage would come from another one percentage point or so to the upside. It is hard to disagree with that.

This is not only an issue to consider, but one of many possibilities to prepare for. Like with a fire drill, there may not be an actual fire, but you do not want to start preparing when the alarm rings for real.

Technical targets for the 10-year US Treasury can potentially be as high as 5.3% and even 6.8% during this cycle versus the current 4.55% rate. Those are not projections or predictions, just part of the strategist’s “war games” that include considering a wide range of possible outcomes.

Jamie Dimon takes a stand

That is what Dimon seems to be doing, and he should be applauded for doing what not all CEOs or investment managers do: saying it out loud, before it happens. Even if the market broadly disagrees at this stage of the cycle.

For investors, the key to considering the higher rate scenario is not what will happen. It is to be prepared for whatever happens. Or, to quote one of Taylor Swift’s many hit songs, the message to advisors is, “Are You Ready?”

“Higher for longer” is a popular Wall Street narrative, which many interpret casually as rates staying where they are for a while and not dropping soon.

Dimon’s suggestion is from someone who sits in the catbird’s seat of Wall Street, and so it is worthy of considering as one of those many scenarios for the market cycle. Here are a few ways to guard against runaway rates in ETF form.

JP Morgan’s CEO carries a lot of weight on Wall Street. And this week, he essentially said there’s something worse than higher for longer – much higher for much longer! – the ETF industry has advisers prepared for that scenario, if it happens.

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