Jamie Dimon on the central bank
Billionaire investor Jamie Dimon recently shared his views on the central bank’s tightening process in an interview. Dimon believes that the market is miscalculating the Federal Reserve’s future moves.
Dimon said, “The Federal Reserve and other central banks may have to take more drastic action than they currently anticipate. . .reacting to markets, not guiding the markets.” The Fed started its gradual rate hike process in December 2015. From December 2015 to March 2018, the Fed hiked its key interest rate six times. Now, the federal funds rate is within the range of 1.50%–1.75%.
A gradual rate hike is good for the economy when the economy shows solid improvement. However, an aggressive rate hike could damage various facets of the economy. It makes borrowing more costly, which hampers consumer spending as well as corporate spending. Slower spending in the economy also reduces economic activity, which could further affect the equity market.
According to Dimon, the market is underestimating the central bank’s drastic action. In terms of recent rate hikes, we’ve seen major indexes show some nervousness after the central bank’s announcement of its rate hike decision. On March 21, 2018, the S&P 500 Index (SPY), the NASDAQ Composite Index (QQQ), and the Dow Jones Industrial Average Index (DIA) fell 0.18%, 0.26%, and 0.18%, respectively, after the Fed hiked its key interest rate by 25 basis points. If there’s an aggressive rate hike, it could hugely affect these indexes.
In the next part of this series, we’ll analyze Dimon’s views on volatility.