The markets might have started this week off on a positive note, but there’s still the potential for things to turn soar as the week goes on. One primary catalyst that investors are watching is the upcoming Federal Reserve meeting this week, with many expecting at least some comments in regards to inflation. With more eyes than ever paying attention to this subject, one top Wall Street banker just said inflation is here to stay.
JPMorgan Chase CEO Jamie Dimon said that the investment bank is effectively stockpiling billions in cash. This is in contrast to some other banks, which are opting to buy other investments or Treasury certifications while they can. The idea is that Dimon suspects higher inflation will force the Fed to ease its easy money policy and hike up interest rates. When this happens, JPMorgan will use its stockpiled cash to buy these higher-yielding assets following the expected interest rate hike. In other words, it’s a short-term bet that the Fed will raise interest rates, one that could garner billions of dollars in extra income for this year if successful.
“We have a lot of cash and capability and we’re going to be very patient, because I think you have a very good chance inflation will be more than transitory,” said Dimon in a statement on Monday. “If you look at our balance sheet, we have $500 billion in cash, we’ve actually been effectively stockpiling more and more cash waiting for opportunities to invest at higher rates. I do expect to see higher rates and more inflation, and we’re prepared for that.”
There’s been a bit of a debate whether this increase in inflation is just temporary due to the reopening of the economy. However, with trillions of dollars flooding the market and more on the way due to Biden’s infrastructure plans, Dimon suspects that inflation is going to be more of a long-term thing. The Fed has said this inflation spike will be just a short-term occurrence before things settle back to normal. However, other prominent banks, like Deutsche Bank, are warning that things could easily spiral out of control if the Fed doesn’t press the breaks.
According to a recent CNBC survey, 65% of American millionaires are worried about inflation. While the value of the dollar itself hasn’t plummeted, we have seen commodity prices skyrocket in recent months. The biggest gainers have been construction-related commodities, like lumber, iron, and copper, part of which has been due to the record demand for housing amidst these low-interest rates. Food prices have also gone up in recent months as well.
Despite these concerns, the general markets are continuing to do well. Indexes like the S&P 500 recently hit another all-time high prior to the weekend. Unemployment numbers are also lower than ever, another good sign for the economy at large. Additionally, the continued rollout of vaccines, as well as states like Vermont dropping all restrictions, are helping spur on the American economy. However, considering that the markets have long been overdue for a serious bear market, many investors are expecting that all this new spending is going to cause a massive inflationary spiral.
