Investors and business should make plans for interest rates to remain higher for longer than current estimates, according JPMorgan Chase
"People need to be prepared for the potential of higher rates for longer," Dimon told analysts during an earnings call on Friday following the bank's first-quarter results. "If and when that happens, it will undress problems in the economy for those who are too exposed to floating rates, for those exposed to refi risk. Those exposures will be in multiple parts of the economy."
Analysts have attributed part of the cause behind the sudden deposit runs on banks like Silicon Valley Bank and Signature Bank to the Federal Reserve's higher interest rates, as central bank policy makers have push the Fed's benchmark rate by about 5 full percentage points in the past year in effort to stabilize prices.
Following the multiple regional bank failures, many analysts on Wall Street are betting that the financial sector crisis will ultimately force the Fed to begin cutting rates later this year in response to a potential economic slowdown. That assumption has kept stocks pretty stable over the past few weeks on positive sentiment that Wall Street will see the benefits of a new low-rate environment in the near- to medium-term.
However, Dimon believes that interest rates will remain higher even if the economy begins to contract. Moreover, Dimon wrote earlier this month in his annual letter to shareholders that the banking crisis is "not yet over" and will be felt for years to come.
"Ironically, banks were incented to own very safe government securities because they were considered highly liquid by regulators and carried very low capital requirements," Dimon said. He added that the Fed did not stress-test banks on what would happen if interest rates jumped.
"This is not to absolve bank management - it's just to make clear that this wasn't the finest hour for many players," Dimon wrote. "All of these colliding factors became critically important when the marketplace, rating agencies and depositors focused on them."
In the earnings call, Dimon said JPM has tested how benchmark rates climbing near 6% would impact the bank, which is the largest by assets in the United States.
U.S. Treasury Secretary Janet Yellen said during an interview with CNN on Saturday that the Fed may stop increase rates if banks become more restrictive with lending in response to the higher rate environment.
"Banks are likely to become somewhat more cautious in this environment," Yellen said. "We already saw some tightening of lending standards in the banking system prior to that episode, and there may be some more to come."
Yellen added that if banks take on more defensive business strategies, such actions could serve as "a substitute for further interest rate hikes that the Fed needs to make."