- Despite inflation dipping slightly in October, JP Morgan CEO Jamie Dimon urged caution on the economy
- Analysts see inflation and high interest rates lingering for years
- Long-term inflation is taking a heavy toll on ordinary Americans
Inflation dropped from a year-over-year rate of 3.7% to 3.2% in October, according to the latest Consumer Price Index report released by the US Bureau of Labor Statistics. While the first drop since June sparked hope on Wall Street, others weren’t so enthusiastic. JPMorgan Chase CEO Jamie Dimon said that inflation might not improve as quickly as anticipated despite recent indicators. Inflation, and its consequences, are going to be with us for some time.1
Dimon Weighs In
Dimon said people are overreacting to short term numbers and “they should stop doing that.” He said, “I’m afraid inflation might not go away that quickly.” He continued that the Federal Reserve is right to pause hikes for now but “they might have to do a little bit more.” Dimon’s remarks echoed those by Citadel founder Ken Griffin who said, “the Fed needs to have the message that they will put the inflation genie back in the bottle.”2
Dimon has been saying for over a year that despite being in good shape now, US consumers and businesses are facing major headwinds. The pushback includes the reduction of the money supply and geopolitical tensions. He said in September that JPMorgan is telling clients to be prepared for 7% interest rates. And that the Fed may have to further hike its benchmark rate to combat inflation.
Inflation Still Taking a Toll
Overall headline inflation was slightly down, but the effects weren’t the same across the board. Gas prices dropped. But prices of groceries, restaurant meals, clothing, and housing increased. Housing was up 6.7% since this time last year.
The markets are cheering the headline numbers. But as investors seem to be anticipating rate cuts from the Federal Reserve, the pressures of the paycheck-to-paycheck economy remain firmly in place.
“The challenge with inflation is it’s cumulative. So, if inflation goes up 8% one year, 10% the next year, and the rate of inflation growth slows down to 3%, big deal. But the price of a home is 30% higher than it was in 2020. The price of eggs is almost double what it was in 2020, and prices don’t come down,” said Mitch Roschelle, Madison Ventures Plus managing director.3
Recent data shows inflation’s lingering impact. 80% of consumers are exhausting their savings to pay bills. Middle-income consumers have seen their readily available savings drop 18% in the last year when factoring in inflation. And 12% spent more than they’ve earned in the last six months.4
In addition, the core inflation rate is telling another story. The core rate, which excludes volatile food and energy prices, is expected to rise 4.1% on an annual basis. The team at Bank of America is forecasting a slightly higher read.
The majority of Americans share one at least one belief with the billionaire chief of JPMorgan – they both think inflation will remain high through 2025. They anticipate further belt tightening down the road.
Fed Offers No Guarantees
Federal Reserve Chair Jerome Powell struck a cautious note about the central bank’s fight against inflation. He warned that it is premature to declare victory and that additional rate hikes may be warranted.
“We know that ongoing progress toward our 2% goal is not assured: Inflation has given us a few head fakes. If it becomes appropriate to tighten policy further, we will not hesitate to do so,” he said.6
Powell’s comments came after the Fed voted to hold interest rates steady at a range of 5.25% to 5.5%, the highest level in 22 years. Policymakers have raised interest rates sharply over the past year, approving 11 rate increases in the hopes of crushing inflation and cooling the economy. In the span of just 16 months, interest rates surged from near zero at the fastest pace of tightening since the 1980s.
Officials are now trying to figure out whether they have tightened monetary policy enough, or whether they need to raise rates higher to tame stubborn inflation. They are scheduled to meet one more time in December. Odds are there won’t be another increase. But if Bank of America’s core rate prediction is true, a hike isn’t off the table.
Despite some investors’ optimism about the economic outlook, the road ahead remains uncertain. While there has been a slight drop in inflation, signs of continued economic strain linger, raising concerns about safeguarding one’s nest egg from inflationary pressures. In times of such uncertainty, diversification into assets that historically weather economic storms becomes crucial. A Gold IRA from American Hartford Gold provides a reliable hedge against inflation, offering stability and security in an ever-changing financial landscape. Learn more about protecting your savings by calling us today at 800-462-0071.