The U.S. economy could easily boom well into 2023, perhaps even having a “Goldilocks moment” where inflation and interest rates rise just enough—but not too much—to keep the powerful engine of growth going, according to the head of America’s largest bank.
JPMorgan Chase Chief Executive Officer Jamie Dimon, releasing his annual letter to shareholders Wednesday, said the government’s swift response to the COVID-19 pandemic last year, including the Federal Reserve’s financial support and Congress’ passage of multiple stimulus packages, “dramatically reversed the deterioration of the economy and unemployment.”1
And now, the Fed’s continued easy money policy, plenty of extra household savings, the potential for a new infrastructure bill, successful vaccines, and a euphoria around the anticipated end of the pandemic sets the country up to take full advantage of a boom that “could easily” continue as spending extends “well into 2023.” This week the International Monetary Fund joined a chorus of other forecasters in raising their U.S. growth estimates, predicting gross domestic product will increase 6.4% this year, or more than twice the pre-pandemic pace.
Perhaps, Dimon signaled, the country won’t even have to contend with the fallout from an overheated economy. While some fear a roaring economy will lead to problematic inflation and in turn, interest rate hikes that are bigger and sooner than expected, Dimon said the U.S. could end up striking just the right balance, as the little girl in the popular children’s story did.
“We don’t know what the future holds, and it is possible that we will have a Goldilocks moment—fast and sustained growth, inflation that moves up gently (but not too much) and interest rates that rise (but not too much),” he wrote in the 67-page letter, using it as a platform for a wide-ranging discussion of everything from the economy and racial inequities to the country’s role on the global stage and what post-pandemic work life will look like. (For JPMorgan Chase, that means many employees will work full-time in person, with a small percentage working from home all the time in very specific roles.)
Dimon acknowledged, however, that a Goldilocks moment is an optimistic scenario. How unfettered these good times will be largely depends on whether new virulent COVID-19 variants are more resistant to current vaccines or whether inflation becomes stubborn, he said. How wisely the government relief is spent and how quickly public policymakers react to changes in circumstances will also play a role.
It’s not an unreasonable possibility that an increase in inflation will not be just temporary, Dimon said, noting that the annual inflation rate was already running at 1.7% in February. If the Fed is forced to raise rates more and sooner than anticipated, the “cost of interest on U.S. debt could go up fairly dramatically making things a little worse,” he said.
Not only is rapidly raising rates to offset an overheating economy a typical cause of a recession, but in this case, the country would be going into a recession with an already very high deficit, he said.
Dimon said stock valuations are high by almost any measure, and “clearly, there is some froth and speculation in parts of the market, which no one should find surprising” given the excess capital that has found its way into stocks. But he said the valuations could be justified by the expected strength in the economy.