JPMorgan CEO Warns of Economic ‘Pain’ and Turbulence ‘That Will Scare People’

JPMorgan Chase CEO Jamie Dimon in Washington on April 9, 2019. (Jeenah Moon/Reuters)

JPMorgan CEO Jamie Dimon said Thursday that Americans will feel economic “pain” before an agreement is reached on raising the debt ceiling and markets will start to experience frightening turbulence as a possible default gets closer.

Dimon made the remarks in an interview with CNN on Thursday, predicting that deadlocked Democrats and Republicans will reach a deal on lifting the debt cap beyond the current $31.4 trillion within a few months—but not before Americans suffer some economic hardship.

“You'll feel the pain before it happens,” Dimon told the outlet, referring to the moment when the Treasury Department’s arsenal of “extraordinary measures” for continuing to settle the U.S. government’s debt obligations runs out.

Various analyses, including a projection from the Congressional Budget Office, have estimated that the Treasury’s “extraordinary measures” to keep the government funded will run out sometime between July and September unless Congress lifts the cap.

As the moment of potential default approaches, Dimon suggested nervous investors will send markets on a wild ride.

“You’ll see it in the markets and that will scare people,” Dimon said, adding that most people in Washington understand how serious the debt ceiling standoff is and “they want to get it to a resolution.”

But until a breakthrough occurs and the threat of a debt default dissipates, Democrats and Republicans remain in a debt cap deadlock.

Investors ‘Should Be Concerned’: McCarthy

Dimon’s warning about the prospect of sharp market gyrations ahead of a possible deft default echo remarks made a day prior by House Speaker Rep. Kevin McCarthy (R-Calif.).

The Republican lawmaker said Wednesday that investors “should be concerned” about the standoff in Washington over raising the debt ceiling as the country inches closer to a possible default and President Joe Biden refuses to negotiate spending cuts as a condition of GOP agreement to lift the cap.

“Unfortunately, I tried to sit down with the president and the president doesn’t want to communicate,” McCarthy told Bloomberg TV in a Wednesday interview, in which he said he’s “very concerned” about the looming default.

Republicans have been working on a deficit-reduction proposal, and McCarthy suggested that once Congress returns from recess later this month, there might be “some news” in this regard.

Asked whether he plans to speak to investors about the GOP proposal in the meantime in order to reassure markets, McCarthy said that Wall Street is right to be worried.

“They should be concerned,” McCarthy said, adding that Biden hasn’t wanted to meet with him and that recent communication between the pair has been limited to an exchange of letters.

McCarthy and Biden Trade Jabs

In his letter to the president, McCarthy warned that Biden’s refusal to negotiate spending cuts to get GOP backing on raising the debt ceiling “could prevent America from meeting its obligations and hold dire ramifications for the entire nation.”

“With each passing day, I am incredibly concerned that you are putting an already fragile economy in jeopardy by insisting upon your extreme position of refusing to negotiate any meaningful changes to out-of-control government spending alongside an increase of the debt limit,” McCarthy wrote.

Biden replied to McCarthy that he’s prepared to consider Republican proposals for spending cuts as part of a budget plan, but that such discussions must be separate from “prompt action on the Congress’ basic obligation to pay the nation’s bills and avoid economic catastrophe.”

Failure to reach an agreement over the debt ceiling could lead to a default on U.S. debt obligations, an outcome many economists have warned would be disastrous.

Standoffs over raising the debt limit have been a regular feature of Washington’s partisan politics though they have largely been resolved before they could impact markets. In one case, however, an extended deadlock in 2011 led Standard & Poor’s to downgrade the U.S. credit rating for the first time, sparking market volatility.

Fitch Ratings warned in February that if investors believed the government were to default, this would lead to increased redemptions and volatility in Treasury-only money market funds (as opposed to prime and government money market funds).

“These funds could face increased volatility in the Treasury market and heightened investor redemptions as the debt ceiling deadline approaches,” Fitch analysts wrote at the time.

Treasury Secretary Janet Yellen recently warned that gaps in the regulatory framework for money market funds makes them prone to runs on deposits when market stress is extreme.