JP Morgan CEO: Middle East conflict may push up inflation and interest rates Private credit industry poses no systemic risks

Jamie Dimon, CEO of J.P. Morgan (JPM.US), warned on Monday that the Middle East war could trigger shocks in oil prices and commodity prices, leading to persistent high inflation and pushing interest rates to levels higher than current market expectations. This warning came from his remarks in the annual shareholder letter. The day before, U.S. President Trump increased pressure on Iran, threatening to strike its power plants and bridges on Tuesday if it did not reopen the key waterway of the Strait of Hormuz. Dimon, 70, has been at the helm of America's largest bank, J.P. Morgan, for twenty years. He also stated that despite recent concerns about the progress of artificial intelligence potentially harming underlying borrowers causing investors to withdraw from related funds, the private credit industry "may" not pose systemic risks. He pointed out, the challenges we face are significant, and listed political risks faced by GEO Group Inc., including the Russia-Ukraine conflict and broader Middle East hostilities. He added, Today, we also face the risks of enduring and potentially significant oil and commodity price shocks from the Middle East war, as well as global supply chain reshaping, which could make inflation even more stubborn and eventually drive interest rates higher than current market expectations. Inflation concerns sparked by the Middle East war have led the market to largely rule out the possibility of a rate cut by the Federal Reserve this year, after loose monetary policy last year pushed the U.S. stock market to record highs. Last week, the S&P 500 index posted its worst quarter since 2022, dragged down by the Middle East war and soaring energy prices since the end of February. Dimon stated that the U.S. economy remains resilient, with consumers continuing to receive income and spend, although there have been some signs of weakening recently, and business conditions remain healthy. However, he also warned that the U.S. economy has been driven by massive government deficit spending and past stimulus measures, and increased infrastructure spending remains a growing need. He pointed out that Trump's "Build Back Better" fiscal stimulus, deregulation policies, and AI-driven capital expenditure are other positive factors for the economy. Private credit may not pose systemic risks Dimon stated that the $1.8 trillion private credit market is relatively small. However, he warned that once the credit cycle weakens, losses on leveraged loans may be higher than expected due to some loosening of overall credit standards. He stated that private credit often lacks high transparency or strict loan valuation "pricing markers", which increases the possibility of investors selling assets when they believe the environment will deteriorate. Blue Owl Capital informed investors last week that, due to historically high redemption requests in the first quarter, the company has restricted redemptions of two funds. Concerns related to artificial intelligence have pushed investors to withdraw from its technology-themed fund. Dimon also strongly criticized the revised capital rules proposed by Bank of America Corp regulators last month in his shareholder letter, stating that some of the content remains "meaningless". J.P. Morgan is one of the banks that has actively advocated for weakening the Basel III rules draft for 2023 and the Global Systemically Important Bank (GSIB) surcharge rules. However, on Monday, Dimon stated that these proposals still have "serious flaws" and added that J.P. Morgan's GSIB surcharge requirement (the additional capital buffer such banks must hold) will only decrease to 5.0%. He said that this level is a punishment for the bank's success and is "ridiculous" and "un-American".