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- 1 The world has seen repercussions of aggressive interest rate hikes of the U.S. Federal Reserves.
- 2 Fed increased the rates by a staggering 525 points from zero since March 2022 till date.
- 3 The JPMorgan CEO thinks if the interest rate reaches the 7% ceiling, it will be devastating.
The interest rate hike by the United States central bank since last year has sent ripple waves to the financial markets worldwide. Following their start, the interest rate increase affected the performance of companies and experts have raised concerns. Jamie Dimon, CEO of JPMorgan, has reportedly expressed concerns about the global economy’s readiness to handle a worst-case scenario involving U.S. interest rates rising as high as 7% alongside stagflation.
As reported by Bloomberg, Dimon suggests that the Federal Reserve may need to continue raising interest rates to combat ongoing inflation, and further increases in borrowing costs could have more detrimental effects on the global economy.
The U.S. Federal Reserve has increased the benchmark interest rate by 525 basis points since March 2022. The increase brought it to the 5.25%-5.5% range which was said to be an effort to combat inflation.
This instance of economic tightening was among the factors that contributed to the crypto market crash that occurred last year. The damage did not remain limited to the crypto only as the banking sector also had to suffer through it. However, the repercussions were visible this year when some of the prestigious banking institutes saw their decline.
The JPMorgan executive points out that the gradual increase from zero to 2% was manageable, and even the jump to 5% was within expectations. However, he expresses uncertainty about whether the world is prepared for the possibility of interest rates reaching 7%.
He emphasizes that if lower trading volumes coincide with higher interest rates, it could create stress in the financial system.
Dimon’s concerns are that if the U.S. interest rates were to rise to 7%, especially in the context of stagflation or persistently high inflation and joblessness, it could increase the risk of the U.S. economy slipping into a recession. This would not bode well for risk assets such as technology stocks and cryptocurrencies. Additionally, the ongoing tightening of rates could push U.S. Treasury yields to multi-decade highs, making bonds more appealing and potentially diverting capital away from riskier investments.
The remarks of the JPMorgan CEO are at odds with the prevailing sentiment that the Federal Reserve’s tightening cycle has reached its zenith. The Fed has expressed its intention to maintain higher borrowing costs for an extended period, signaling that further rate hikes could be on the horizon.
Rather, many expected that the American central bank may reverse the process and start decreasing the interest rates soon. However, the Fed indirectly denied any such possibility to take place anytime in the near future.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while pursuing his post-graduation major in blockchain development. He is a keen observer of details and shares his passion for writing, along with coding. His backend knowledge about blockchain helps him give a unique perspective to his writing skills, and a reliable craft at explaining the concepts such as blockchain programming, languages and token minting. He also frequently shares technical details and performance indicators of ICOs and IDOs.
