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This will have other consequences, possibly later on, what's known as inflation, which might not disappear as people expect. So when I look at the range of possible outcomes, you know, we could have that soft landing. I'm a little more concerned that it might not be so soft and that inflation might not disappear as people expect.
I'm not just talking about this year; I'm talking about 2025 and 2026. Rates may have to rise a bit more. I'm talking about the 10-year rate, the 5-year rate, and that could have consequences. So we'll see. Billionaire Hamy Dimon is warning that serious storm clouds are forming over the US economy. If you're looking to protect your financial future, understanding what Dimon could mean could be the difference between staying afloat and sinking.
Now there's a narrative forming in the media and elsewhere that America has officially achieved the elusive economic soft landing by raising interest rates to tame inflation without plunging the economy into a deep, dark recession. But not so fast, says Hamy Dimon. Dimon's position as COO of JP Morgan Chase, the largest bank in the United States, gives you a truly unparalleled view of the economy.
Unfortunately, Dimon is concerned about what he's seeing. Listen to what CL has to say to different consumers here. The bottom 20% of America hasn't performed particularly well over the last 20 years. Incomes have barely risen and are actually starting to rise for the first time in almost 20 years. Remember the inflation, the crime—there are many negative effects.
Some people can't get mortgages, they can't buy a house. Their jobs still don't pay. You know, I think 25% of jobs in America pay $15 an hour or less. So yes, there's a part of society that's struggling and another part of society that isn't. And I think that's a different problem about how we deal with politics.
But you can see why that bothers people, and then you see many other things that, you know, people look at in the world and they worry about geopolitics, they worry about politics, they worry about polarization. So you have a disconnect about, you know, the economy, and as you said, confidence levels in many important indicators.
The US economy is... Incredibly strong, the gross domestic product, or GDP, is a measure of the size and health of the economy. As you can see here, GDP continues to grow at a healthy and steady pace. Furthermore, the unemployment rate is at only 3.9%, well below the long-term average of around 6%. Household wealth is at an all-time high as the stock market and home values continue to rise.
All these numbers seemingly point to a strong and vibrant economy. However, if you ask the average American, most of them would tell you a rather different story. As this chart shows, American consumer confidence is hovering around its lowest levels in more than a decade. What the economic data is showing and how many American consumers feel doesn't seem to match up, and there's a reason for this.
As Edimon explained in that clip, a story of two Americas is forming. On one side, you have high-income individuals and families who own large amounts of assets such as stocks, real estate, and businesses. On the other end of the spectrum, you have low-income workers, people who tend to rent and don't own significant amounts of financial assets.
Every year, it seems that people somewhere in the middle—the middle class—are losing ground. The middle class is getting smaller and smaller. This so -called shrinking middle class has been a trend that goes back decades, but it certainly seems to have increased in recent years. To illustrate what I mean, let me tell you a quick story.
Meet Adam and John. Both Adam and John live in the same city, are the same age, and actually work for the same large, publicly traded company. However, that's where the similarities begin to end. You see, Adam is a software engineer for the company—a very well-paid career. In recent years, Adam has seen his salary increase significantly, even after adjusting for inflation.
In addition, as part of Adam's compensation, he also receives what is known as equity. Equity is a small ownership stake in the company. Since the company he works for is public, this takes the form of company shares that are traded on the stock market. Adam's employer also provides him with a generous retirement plan, the proceeds of which are invested in the stock market to eventually fund a comfortable retirement for Adam.
Furthermore, Adam was able to buy a house in 2019. Very importantly, this was when mortgage rates were low and before home values skyrocketed. They really started to skyrocket. Compare Adam's situation to Y's. Y is employed by the same company as Adam; however, Y isn't a software engineer but rather the manager of the cafeteria located in the office building.
In recent years, Yon has seen his wages increase. But these wage increases haven't kept pace with the historically high levels of inflation the country has experienced. This means that after adjusting for the impacts of inflation, or as economists like to say, in real terms, Yon has actually seen his wages decrease in recent years as a blue-collar worker.
John's compensation doesn't include company stock, and he doesn't receive retirement benefits. As a result, Yon owns little to no stock. Unfortunately for Yon, he couldn't buy a house before housing values and interest rates skyrocketed. As a result, he's renting an apartment. Adam and John's story represents a tale of two Americas in today's economy.
Yes, the main numbers like GDP and unemployment rates look great on the surface; however, not everyone is benefiting. Take, for example, the stock market at record levels after receiving shares in his company. As part of his salary and in his retirement account, Adam owns a substantial amount of stock.
As the stock market continues to reach all- time highs, Adam is seeing his net worth increase as a result. On the other hand, Ion owns no stock, so he is not benefiting from the booming stock market. If you want to be more like Adam and less like Joh, it's a good idea to own stocks. However, not all types of businesses thrive during high-inflation environments.
Take capital-intensive companies, for example, which are firms that require large amounts of reinvestment to produce their goods and services. Capital-intensive industries suffer in high-inflation environments because rising prices significantly increase the costs of long-term investments, maintenance, and financing.
Higher interest rates also raise borrowing costs, making profitability even more difficult during times of higher inflation. It is generally better to invest in non-capital-intensive industries. To help you in this search, we have compiled a list of industries that are both capital-intensive and non- capital-intensive.
Click the link in the description below to access your free copy. Now let's go back to Adam and John. Things get even worse when you consider the housing situation. Adam bought his house before prices and interest rates skyrocketed. He's one of the approximately 60 percent of homeowners with a mortgage interest rate below 4%.
Adam has secured his mortgage payment for 30 years, which means that rising housing prices and rents have had little impact on his monthly budget. John, on the other hand, is a renter. He has seen his monthly rent increase dramatically in recent years. As you can see here, the average rent in the United States was around $ 1,600 in 2019; now it's over $ 2,000—an increase of more than 25.5%.
As you can see from Adam and John's story, for many people, the economy is worse than the numbers would indicate. And as you're about to hear from Jamy Edmond, there does n't seem to be any relief on the horizon. It's a false sense of security because today is okay and you think tomorrow will be too.
So I'm just trying to separate the two things. The problem The most urgent challenge facing the US economy in recent years has been inflation. As you can see in this chart, until the last two years, inflation hadn't been a problem in the United States. For decades, this had been especially true during the last 10 to 15 years.
During this period, inflation was routinely well below 2%. Inflation had remained so low for so long that some economists even believed that inflation was something the United States, its government, and policymakers would never have to worry about again. But boy, were they wrong. Inflation peaked at over 9.1 percent in the summer of 2022.
In an attempt to control inflation, the US Federal Reserve, led by Jerome Powell, had to take drastic measures. This included raising interest rates at one of the fastest rates in the country's history, creating concern that this rapid action would send the US economy into a deep and dark recession.
To truly understand Jami Edimon's earlier comments, one must first understand what causes inflation according to economics. Inflation occurs when there is too much money chasing too few goods. In other words, when there is more demand than supply, prices rise. Here is a simplified example to demonstrate this.
This line here represents the available supply of a particular good or service. For the purpose of this example, let's say we are talking about used cars. So in this case, our line here represents the number of used cars available to be purchased at any given time. This line here is our demand line.
Our demand line represents the number of buyers looking to purchase that particular good or service. In addition—and this is a very important distinction—it also represents how much these buyers are willing and able to spend on that purchase. The point where these two lines intersect is the price of the good or service.
So in our case, the price of a used car during 2020. The supply of used cars decreased because automakers had supply chain problems and couldn't manufacture as many new vehicles. As a result, people kept their vehicles longer, limiting the number of used vehicles for sale. This dynamic caused our supply line to shift to the left.
At the same time, consumers had plenty of cash. And historically low interest rates made it cheap to borrow money to buy a car. This meant that buyers could afford to pay more for a car. This increased demand is shown by our demand line moving to the right. Notice now how our supply and demand lines now intersect at a higher point.
This is inflation in action. To control inflation, the US Federal Reserve had to try to weaken demand and balance our supply and demand lines. Here, its main tool to try to achieve this goal is to raise interest rates. Interest rates have a huge impact on the economy. Low interest rates are like adrenaline that can provide a stimulus to the economy.
When interest rates are lowered, it becomes cheaper and easier for both businesses and consumers to borrow money. For businesses, this means that projects that were previously only slightly unprofitable now become viable. For example, suppose a company has a project that would generate a 4% return, but the financing costs were 5%.
At that interest rate, the project wouldn't make sense because it would cause the company to lose money, since the cost of borrowing is greater than the return. The project's return, however, would decrease if interest rates fell to 3%. That same project would now generate a profit, incentivizing the company to invest, hire more workers, and increase economic activity.
Similarly, lower interest rates mean consumers can afford to borrow more money for major purchases like homes and cars, as well as refinance existing loans to free up cash. This increase in consumer spending stimulates demand, which in turn fuels economic growth. When interest rates are low and economic activity is high, inflation can be stimulated due to several factors.
First, with lower borrowing costs, consumers have more money to spend, which increases the demand for goods and services. This increased demand can drive prices up, especially if the supply of those goods and services cannot keep pace. Businesses also benefit from lower interest rates because it becomes cheaper to finance expansion projects.
Companies invest more in equipment, raw materials, and additional workers, which raises the demand for resources and labor. This higher demand can lead to higher costs, which businesses often pass on to consumers in the form of higher prices. Furthermore, interest rates... Low interest rates tend to boost investment in assets like stocks and real estate, inflating their prices.
As these asset prices rise, people feel wealthier and spend more, further increasing demand and putting upward pressure on prices. Higher interest rates do the opposite and are like giving the economy a sedative; they slow things down and hopefully help return the economy to a more normal level. But this creates a difficult balancing act for the Fed.
They want to raise interest rates enough to curb demand and reduce inflation, yet they don't want to raise them too high and push the economy into a recession. So far, it seems the Fed has successfully walked this tightrope. Inflation has fallen significantly in recent times, and the economy remains resilient across many important indicators.
However, Hamy Edmond cautions that it is too early to call it a success. This is because the fight against inflation is not yet over. The most recent inflation reading was 3.5 percent. Yes, this is a considerable improvement from the peak of 8 or 9%, but it's still well above the Fed's 2% inflation target.
If inflation continues to be elevated, the Fed will have to keep interest rates high, and this will likely eventually start to cause cracks in the economy. Only time will tell how things will ultimately play out. However, according to Hami Edimon, there are reasons to be concerned. If you've made it this far in the video, it's obvious you 're seriously interested in learning what's happening in the economy.
Be sure to watch this video here because legendary investor Warren Buffett talks about the trillion-dollar storm brewing in the housing market.
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