Jamie Dimon Warns: Persistent Inflation Complicates Fed Rate Cut Plans

Jamie Dimon, Chairman and CEO of JPMorgan Chase, often referred to as the "dean of Wall Street," has cautioned that stubbornly high inflation hovering around 3% could make it difficult for the Federal Reserve to implement further easing policies, despite market expectations of rate cuts in the remaining two meetings this year.

Persistent Inflation: A Challenge to Monetary Policy

In an interview with CNBC-TV18 on the sidelines of JPMorgan's annual India Investor Summit in Mumbai, Dimon stated bluntly: "If inflation doesn't go away, the Fed will have a hard time cutting rates… Inflation seems to be stuck at 3% right now." He expressed his belief that the trajectory of inflation is more likely to be upward than downward, particularly emphasizing the need for caution regarding the long-term impacts of tariff policies on prices.

Recession and Rate Cuts: A Cautious Approach

Regarding the option of using rate cuts to address an economic recession, Dimon voiced his explicit opposition, saying: "Obviously, if you're forced to cut rates because of a recession, that's a bad thing in itself." He would prefer to see interest rates come down naturally through moderate economic growth, but acknowledged that the current policy environment is fraught with uncertainties.

Market Expectations and Fed Forecasts

Despite Dimon's warnings, markets continue to strongly anticipate an easing policy from the Federal Reserve. CME Group's FedWatch Tool indicates investors are pricing in a 90% and 75% probability of 25-basis-point rate cuts in the October and December meetings, respectively. This expectation has fueled a sustained rally in U.S. equities: the SPY ETF, tracking the S&P 500, is up 14.8% year-to-date, while the QQQ ETF, tracking the Nasdaq 100, has gained 18.1%. Sentiment data from social media platform Stocktwits shows a bull/bear ratio of 71/100 among retail investors for SPY, but a more neutral stance (41/100) towards QQQ, reflecting concerns about the overvaluation of tech stocks.

Structural Contradictions in the U.S. Economy

Dimon's caution stems from the structural contradictions within the U.S. economy. August non-farm payrolls added only 22,000 jobs, and the unemployment rate rose to 4.3%, signaling a significant cooling of the labor market. However, the July core PCE inflation rose 2.9% year-on-year, the highest since February, while the supercore PCE (excluding housing services inflation) climbed to 3.3% year-on-year, highlighting persistent price pressures.

Job Cuts and Corporate Strategies

"Companies are using layoffs to hedge tariff costs," Dimon pointed out. Although second-quarter corporate revenue growth was 6.3% and profits achieved double-digit gains, labor costs have become a primary target for cuts. Tech giants like Google and Microsoft have collectively laid off nearly 90,000 employees this year, and this shift "from hoarding to cutting" is dragging down consumer spending power.

Fed Independence and Political Intervention

Dimon specifically emphasized the fragility of the Federal Reserve's independence. Although Trump publicly declared his "support for an independent Fed," his administration has initiated the process of selecting a new chair, planning to complete interviews with 11 candidates by next week, focusing on their stances on monetary policy. "Independence is eroding in areas of regulation and rule-making," Dimon suggested. He hinted that the selection of a new chair could influence the Fed's policy path.

Tariff Policies and Imported Inflation

Dimon believes that Trump's tariff policies are reshaping the logic of inflation. Although current tariff costs are primarily borne by companies (less than 20% pass-through), as supply chain adjustment space narrows, consumers may face more significant price increases in 2026.

Conclusion: Navigating a Complex Economic Landscape

Dimon urged the market to reduce reliance on monetary easing, stating: "Investors should not overfocus on a 25-basis-point rate cut, but rather focus on the sustainability of corporate earnings." He predicted that if geopolitical risks (such as an escalation of the conflict in the Middle East) further push up energy prices, the Fed may be forced to restart rate hikes in 2026. The US faces a complex economic landscape, and navigating it will require careful consideration from policymakers and investors alike.