Jamie Dimon believes U.S. 'not prepared' for 7% interest rates

While Fed officials held interest rates in place at their September FOMC meeting, some of Wall Street's biggest names remain uncertain on the trajectory of regulators' monetary policy. JPMorgan Chase (JPM) CEO Jamie Dimon told the Times of India in an interview: "I am not sure if the world is prepared for 7%."

Yahoo Finance anchors Brad Smith and Seana Smith examine Dimon's comments and how the US economy is currently balancing unemployment and elevated interest rates in the Fed's attempt to alleviate inflation.

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Video transcript

BRAD SMITH: Let's get to today's Morning Driver. JPMorgan CEO Jamie Dimon is warning that the US economy may not be prepared should the Fed raise interest rates to 7%. The big bank leader told "The Times of India," "Going from 0% to 2% was almost no increase. Going from 0% to 5% caught some people off guard, but no one would have taken 5% out of the realm of possibility. I'm not sure if the world is prepared for 7%."

And so let's really wrap our minds around what 7% would mean in actuality, especially in an environment currently where we've already seen some of the forecasts come through as of right now for potential recession in the next 24 months-- or excuse me, 12 months here sitting at about 60% to 65%, that coming from the Federal Reserve Bank of Saint Louis.

And so you think about all of what would need to take place in order to make that happen, you'd have to see a further collapse in consumer confidence and consumer spending as well. You'd also more than likely see a large tick up. We've already seen economists calling for as high as 5% to 5.5% in the unemployment rate as well. So the much more, kind of, dire conditions that would come about should we get to a 7% that would then eventually firmly put us, I think and many others out there, in that position of, well, when do we cut? And how quickly do we need to cut as well?

SEANA SMITH: Yeah, exactly. That totally changes the scenario right now because base case still at this point is very much for a soft landing. You mentioned the unemployment number, at least today at 3.8%. So if we do, in fact, see rates go as high as 7%, as Dimon was warning, could potentially be a possibility that obviously is going to change the dynamics right now within the economy.

And you're right. As it stands right now, many forecasters, or I would say, just shy than the majority here still think that we are going to be able to avoid a recession. But we're starting to hear more and more calls for another rate hike.

We just heard from the Fed's Kashkari yesterday saying that when you take a look at the economy right now, he sees a scenario where we are going to need to hike one more time at least here in order for things to cool off. And he said, quote, "If the economy is fundamentally much stronger than we realized on the margin, that would tell me that rates probably have to go a little higher and be held higher for longer to cool things off."

So I think everyone's trying to figure out exactly what the Fed needs to do if they need to do more in order to get inflation under control, because yes, we have seen a pretty steady decline, although it's been a little bit bumpy over the last month or two, in inflation. But now the question is what needs to happen in order to get to that 2% target which the Fed has reiterated time and time again?

BRAD SMITH: Yeah, and it's going to come through the tone, the tenor of Fed Chair Jay Powell and his communication when he takes the lectern time after time again after all of their policy meetings. But perhaps the minutes will give us a little bit more of clarity around how the discourse, how the discussion is taking place here, especially as we are sitting right now through fresh projections recently saying and showing that 12 out of the 19 officials, they were looking for another hike this year.

So all of that considered the dot plot as well as the meeting minutes beyond just what we hear directly from the mouthpiece of the Fed could be amazingly important to keep an eye on as well going forward.