(Reuters) -Top U.S. bank CEOs on Wednesday flagged the growing risks to the economy from rising inflation, which is slowing consumer spending and threatens the push the world’s biggest economy into a recession unless the Federal Reserve acts more forcefully.
Jamie Dimon, Chairman and Chief Executive of JPMorgan Chase & Co (NYSE:JPM) told a banking conference the current situation is unprecedented.
“The Fed has to meet this now with raising rates and QT (quantitative tightening). It might be they have to do QT. They do not have a choice because there’s so much liquidity in the system,” Dimon said.
Major central banks, already plotting interest rate hikes in a fight against inflation, are also preparing a common pullback from key financial markets in a first-ever round of global quantitative tightening expected to restrict credit and add stress to an already-slowing world economy.
The inflation battle has become the focal point of President Joe Biden’s June agenda amidst his sagging opinions polls and before November’s congressional election.
Dimon’s comments come a day after U.S. President Joe Biden met with Federal Reserve Chair Jerome Powell to discuss inflation, which is hovering at 40-year highs.
The Fed is under pressure to decisively make a dent in an inflation rate that is running at more than three times its 2% goal and has caused a jump in the cost of living for Americans. It faces a difficult task in dampening demand enough to curb inflation while not causing a recession.
Wells Fargo (NYSE:WFC) & Co CEO warned that the Federal Reserve would find it “extremely difficult” to manage a soft landing of the economy as the central bank seeks to douse the inflation fire with interest rate hikes.
The CEO of the fourth-largest U.S. lender also said that Wells Fargo is seeing a direct impact from inflation on consumers’ spending, particularly on fuel and food.
“The scenario of a soft landing is … extremely difficult to achieve in the environment that we’re in today,” Wells Fargo Chief Executive Officer, Charlie Scharf, said at a conference.
“The economy does need to slow in order to tame inflation. If there is a short recession, that’s not all that deep… there will be some pain as you go through it, overall, everyone will be just fine coming out of it,” he added.
Scharf said while the overall consumer spending is strong, growth is slowing.
“Corporations are still spending, where they can they’re increasing inventories … we do expect the consumer and ultimately businesses to weaken, which is part of what the Fed is trying to engineer but hopefully in a constructive way,” he added.
