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JPMorgan Chase President Daniel Pinto on Monday joined a chorus of Wall Street executives who are forecasting a U.S. economic recession as the Federal Reserve tries to crush runaway inflation with the most rapid interest rate hikes in decades.
Pinto – who also serves as JPMorgan's chief operating officer – stressed that wrestling inflation that is still running near a 40-year high under control should remain the Fed's top priority, even if the U.S. central bank ultimately triggers a downturn.
"That’s why when people say, ‘the Fed is too hawkish,’ I disagree," Pinto said during an interview with CNBC. "I think putting inflation back in a box is very important. If it causes a slightly deeper recession for a period of time, that is the price we have to pay."
The banking executive said that it's key the Fed doesn't allow inflation to become entrenched in the economy. If Fed officials prematurely lower interest rates, they risk repeating the mistakes of the 1970s and 1980s, when the economy was in the grips of a phenomenon known as "stagflation."
Daniel Pinto, of JPMorgan Chase, speaks during the Institute of International Finance annual membership meeting in Washington, D.C., on Oct. 18, 2019. (Al Drago/Bloomberg via Getty Images / Getty Images)
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Stagflation is the combination of economic stagnation and high inflation, characterized by soaring consumer prices as well as high unemployment.
Because of that risk, Pinto says it's more likely the Fed errs on the side of being aggressive; the fed funds rate, Pinto said, will likely peak around 5%. Rates are currently at a range of 3% to 3.25%.
A customer shops at a supermarket in Millbrae, California, Aug. 10, 2022. (Li Jianguo/Xinhua via Getty Images / Getty Images)
Pinto is just the latest business leader to sound the alarm over the deteriorating U.S. economy. JPMorgan CEO Jamie Dimon, Amazon founder Jeff Bezos, Tesla CEO Elon Musk and Goldman Sachs CEO David Solomon have all expressed concern that the U.S. is headed for a recession as a result of higher interest rates.
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"These are very, very serious things which I think are likely to push the U.S. and the world – I mean, Europe is already in recession – and they’re likely to put the U.S. in some kind of recession six to nine months from now," Dimon said during an interview with CNBC on Oct. 10.
Economic growth already contracted in the first two quarters of the year, with gross domestic product – the broadest measure of goods and services produced in a nation – shrinking by 1.6% in the winter and 0.6% in the spring, signaling the start of a technical recession.
Fed Chairman Jerome Powell speaks during a news conference in Washington, D.C., on May 4, 2022. (Al Drago/Bloomberg via Getty Images / Getty Images)
Fed Chair Jerome Powell has all but conceded the central bank will tip the economy into a recession with its rapid rate hikes, warning that higher rates will cause economic "pain."
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"The chances of a soft landing are likely to diminish to the extent that policy needs to be more restrictive or restrictive for longer," Powell told reporters in Washington in September. "Nonetheless, we’re committed to getting inflation back down to 2%. We think a failure to restore price stability would mean far greater pain."