Jamie Dimon’s Surprising Thoughts on Interest Rates

One big one that surprised me was when Dimon said, “I think everyone should be prepared for rates going higher from here. You should be prepared for 6 or 7 percent.”

This is notable because the market is not pricing in this scenario at all. Fed fund futures are actually pricing in 1-3 rate cuts by year end.

If rates do push to 6-7%, the implications for the stock market are bearish. If investors can earn those types of returns risk-free, liquidity would likely move out of stocks on the margin and into money market funds.

Companies may need to consider increasing dividends to attract investors. In the late 1970s, the dividend yield on the S&P 500 was 5.3% — a big difference when compared to the paltry 1.6% dividend yield today.

“There’s always an off-sides,” Dimon said. “The off-sides in this case will probably be real estate. It’ll be certain locations, certain office properties, certain construction loans. It could be very isolated; it won’t be every bank.”

“You’re already seeing credit tighten up because the easiest way for a bank to retain capital is not to make the next loan,” said Dimon.

The banking crisis is not likely over yet. It has been just two months since the failure of Silicon Valley Bank. Even if the regional banks can stay afloat, regulation will be on the rise and fewer loans will be made. Many investors continue to move money away from banks' paying very low interest rates to higher yielding accounts elsewhere.

6-7% interest is a win for savers, but these factors are negative for US economic growth in the coming quarters.