Their hawkish predictions chime with recent comments from two senior-ranking Fed officials, who both suggested rates may have to rise quickly to head off inflation.
Such an outcome implies a return to the “normal” kind of conditions not seen since before the financial crisis of 2008, when it was more expensive to borrow money but easier to generate capital from less-risky investment options such as cash and bonds.
It’s a scenario that could be welcomed by CEOs in the banking, insurance and and funds management sectors left grappling with meager returns on investment. Companies sitting on large cash balances, such as Apple and Google, also could enjoy the opportunity to earn more on vanilla deposits.
On the flipside, higher rates could discourage some households and businesses from borrowing, potentially making life tough for CEOs in the housing and retail sectors—and even among the banks if consumer confidence slumps. Higher rates would also mean a higher dollar, potentially stripping the manufacturing sector of a competitive advantage.
“I believe America is doing better than people think and therefore interest rates are probably going to be stronger than people think,” Dimon told the JPMorgan Healthcare conference in San Francisco on Monday.
His comments came as PwC made its key global economic predictions for 2017. Chief among them was an expectation that U.S. rates will indeed head north. “It is possible the Fed could tighten faster than currently suggested depending on the pace, size and implementation of the new administration’s fiscal plans,” PwC said. “On the flipside, economies which rely on the dollar for financing will come under pressure.”
Donald Trump’s pledges to slash taxes and loosen regulation prompted Richmond Fed President Jeffrey Lacker on Friday to suggest rates may need to increase “more briskly than markets appear to expect.”
On Monday, Boston Fed President Eric Rosengren warned of inflation risks if the Fed doesn’t speed up its normalization of monetary policy. “I expect that appropriate monetary policy will need to normalize more quickly than over the past year,” he said.
The Fed raised interest rates in December by a quarter of a percentage point—building on a quarter percentage point rise a year earlier—and policymakers said they expected to hike rates three more times in 2017.