JPMorgan CEO says conflict impact will be limited if it is short-lived. IMF says it’s too early to assess the impact on global economy.
JPMorgan Chase chairman and CEO Jamie Dimon said escalating tensions with Iran are unlikely to deliver a sustained inflation shock, provided the conflict does not drag on. However, he cautioned investors about mounting credit risks and the potential for cyber retaliation.
Speaking Monday on CNBC’s “The Exchange,” Dimon addressed markets’ reaction to the weekend’s developments in the Middle East, reiterating concerns he has previously raised about geopolitical complacency.
“My heart goes out and we're praying for all our soldiers and sailors overseas and our employees,” Dimon said. “We obviously have employees in a lot of those cities. That's the most important thing.”
While acknowledging that outcomes are difficult to forecast, Dimon said he sees a possibility that the turmoil could ultimately pave the way toward greater stability in the region. Market moves so far, he noted, have been measured.
“Economic, the economy is not often driven by something like that unless it's prolonged,” he said.
Inflation: ‘Not a major inflationary hit’ if conflict is brief
Investors have been watching oil prices closely for signs of spillover into consumer prices. Dimon downplayed the likelihood of a lasting inflationary surge tied directly to the conflict.
“Not, I don't think this thing in an isolated way will,” he said. “I think there's some risk there is more inflation than people think, and that could be like a skunk in a party if that ever happens.”
Higher gasoline prices are possible in the near term, he acknowledged, but added: “If it's not prolonged, it's not going to be a major inflationary hit. Again, if it went on for a long time, that would be different.”
Dimon also addressed the possibility of retaliatory cyberattacks, an issue he has described in past shareholder letters as one of the most significant risks facing banks.
“You got to expect there will be cyberattacks or terrorist attacks either here, around the world. Banks may be targets,” he said. “We always try to be prepared for that.”
He emphasized that cybersecurity risk ranks among the most serious threats financial institutions face. “I have always said I would consider that one of the highest risk banks bear, not just the cycle, cyber,” Dimon said.
The IMF stated Tuesday that it is closely monitoring developments in the Middle East.
“So far, we have observed disruptions to trade and economic activity, surges in energy prices, and volatility in financial markets,” the organization’s statement said. “The situation remains highly fluid and adds to an already uncertain global economic environment. It is too early to assess the economic impact on the region and the global economy. That impact will depend on the extent and duration of the conflict.”
US Treasury yields have been rising early Tuesday with the 10-year benchmark note up 4 basis points to 4.09% by 6am ET.
Credit Cycle Concerns Intensify
At CNBC’s Leveraged Finance Conference, Dimon elaborated on comments he made last week likening today’s credit environment to the mid-2000s, when leverage and loose underwriting preceded the financial crisis.
Consumers and corporations, he said, generally remain in solid condition. Governments, however, are far more indebted than in prior cycles.
“We're going to have a cycle one day,” Dimon said, adding that when it arrives, it could prove more severe than a typical downturn due to high asset prices and narrow credit spreads. “I believe that it'll be worse than a normal one when it happens.”
He pointed to underwriting slippage across the lending landscape, stressing that his concerns are not confined to private credit.
“Not everyone who makes loans is very good at it,” Dimon said, citing instances of “bad underwriting, and some more fraud than there should be.”
Clarifying earlier remarks that sparked debate, he said: “No, I never meant that from the cockroach comment or this thing. This is underwriting standards.”
Dimon added that certain lenders are stretching terms beyond what JPMorgan would consider prudent. “We see people, and we do, sometimes doing things that we would never do,” he said.
Retail Access to Private Credit: ‘Heightened Sense’ Needed
On the question of private credit products moving into retail accounts and potentially 401(k)s, Dimon struck a cautious tone, echoing concerns voiced by industry peers.
“Whenever you go to retail, you better have a heightened sense of what can happen,” he said.
Retail investors may not fully appreciate the volatility inherent in private assets, particularly if dividends are reduced or valuations drop sharply. Institutions are accustomed to such swings, he noted, but individual investors may react differently—potentially triggering regulatory scrutiny.
“If you set the right standards, it'll be OK or at least far better than the people who don't do it the right way,” Dimon said. “It's not doing it the right way will get you in trouble.”
