A huge rise in US government spending will boost the world’s largest economy over at least the next two years, said the chief executive of JPMorgan Chase.
Jamie Dimon offered the upbeat outlook in his annual letter to shareholders, in which he asserted that high savings rates, stimulus programmes, a potential infrastructure package and “euphoria around the end of the pandemic” were likely to jump-start the US economy.
“It is possible that we will have a Goldilocks moment — fast growth, inflation that moves up gently (but not too much) and interest rates that rise (but not too much),” Wall Street’s leading banker said, adding that sustained spending could fuel a years-long hot streak.
Both consumers and companies appeared to be in great financial health as the country starts to emerge from the health crisis, said Dimon, who heads the largest US bank by assets.
Even before Joe Biden’s $1.9tn stimulus package was passed last month, JPMorgan estimated that retail customers had roughly $2tn in excess savings. Large companies, meanwhile, are carrying a sizeable $3tn cash cushion on their balance sheets.
Additionally, expansionary actions taken by monetary authorities around the world should have “a compounding global effect”, Dimon said.
If such a boom emerges, high-flying valuations in equity markets could be justified, though an oversupply of US debt would make it hard to support the price of Treasury bonds, he added.
Dimon repeatedly advocated in his 34,000-word missive for higher government spending to address some of the country’s glaring issues, such as ageing infrastructure, unaffordable healthcare and widening economic inequality.
“Spent wisely, it will create more economic opportunity for everyone,” he said, acknowledging that sometimes too much money was jammed up in inefficient bureaucratic programmes.
His comments came as the Biden administration has turned its attention to passing a $2tn infrastructure plan on the heels of roughly $5.8tn in stimulus spending throughout the pandemic.
Supporters have cheered the infrastructure proposal as a long-overdue investment, while critics have said the additional spending, in the wake of costly stimulus packages, risked overheating the economy and sending the US into recession.
Though the “Goldilocks” scenario was probable, Dimon assured investors that JPMorgan was also prepared for the possibility of runaway inflation or yet another wave of lockdowns.
“And, of course, being who we are, while we are going to hope for the Goldilocks scenario — and we think there is a chance for that to happen — we will anticipate and be prepared for two other negative scenarios,” he said.
Though Dimon did not directly address the most controversial aspect of the US president’s infrastructure plan — an increase in the corporate tax rate to 28 per cent from 21 per cent to help pay for the measures — he maintained that the country needed a globally competitive tax structure.
“Even if that capital is distributed in dividends or stock buybacks, it is simply being put to a higher and better use — this is completely normal capital reallocation,” he said.