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## The Impact of Rising Interest Rates on the Economy

### By Chris Newlands, Business reporter, BBC News
#### Updated 1 hour ago


The boss of one of the world’s biggest banks, Jamie Dimon, has issued a warning that US interest rates could potentially climb to 8%. In light of “persistent inflationary pressures,” Dimon, who heads JPMorgan Chase, revealed that his bank has made preparations for such a scenario.

With central banks globally increasing rates to combat rising prices, some countries are now experiencing a gradual slowdown in inflation. This could prompt central banks to consider lowering interest rates. The annual shareholder letter from Mr. Dimon emphasized that JPMorgan Chase is positioned to handle a wide range of interest rates, from 2% to 8% or possibly even higher, due to factors like high government spending and the necessity to control price hikes.

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Mr. Dimon’s remarks coincide with current US interest rates hovering between 5.25% and 5.5%, marking the highest levels in over two decades. These higher rates discourage borrowing for home purchases and business investments, slowing down the economy and alleviating inflation pressures.

Market expectations point towards a decline in interest rates in 2024, with projections indicating two quarter-point rate cuts by the US Federal Reserve this year. Amid ongoing fiscal spending, global trade reconfigurations, and the emergence of green industries, inflationary pressures remain a concern, as mentioned by Mr. Dimon.

In the forthcoming decision on interest rates, the US Federal Reserve is anticipated to maintain the current levels, with a potential rate cut on the horizon in June. Similarly, the European Central Bank is likely to follow suit with its first cut also expected in June.

While some analysts question the possibility of rate cuts in the US this summer, upcoming inflation data could influence these decisions. The latest US inflation figures, scheduled for release on Wednesday, are expected to show a year-on-year increase to 3.4%, making the justification for rate cuts more challenging.

Federal Reserve Chair Jay Powell hinted at potential policy rate adjustments during a speech at Stanford University in early April, reflecting the committee’s stance on future rate adjustments.

As the longest-serving chief executive of a major investment bank, Mr. Dimon’s viewpoint on the pivotal state of the US economy amidst global uncertainties holds significance. In his shareholder letter, he emphasized the critical juncture the United States faces, underscoring the need for vigilance and readiness in navigating the evolving financial landscape.

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