JPMorgan Chase CEO Jamie Dimon said he was preparing for the coming economic hurricane and advised investors to do the same.

"You know, I said there are dark clouds right now, but I'm going to change that...it's a hurricane," he said on Wednesday, adding that while the current situation looked good, no one knew the hurricane was a minor one. Hurricane or Superstorm Sandy,” he told a room full of analysts and investors: “You better prepare, JPMorgan is preparing, we’re going to be very conservative with our balance sheet. "

Beginning with a run higher at the end of last year for tech stocks, shares fell sharply as investors braced for the end of the Fed's era of cheap money. Inflation at multi-decade highs due to supply chain disruptions and the pandemic has fueled fears that the Federal Reserve will inadvertently tip the economy into recession as it fights higher prices.

While U.S. stocks rebounded from a slump in recent weeks on optimism that inflation may be easing, Dimon appeared to have dashed hopes that the market had bottomed. "Right now, the weather is fine, everything is fine, and everyone thinks the Fed can handle it," he said. "The hurricane is out there, on the way, coming toward us ."

Two main factors worry him. First, the Fed has signaled it will cancel its emergency bond-buying program and shrink its balance sheet. The so-called quantitative tightening (QT) program will begin this month and will reduce bond holdings by up to $95 billion a month .

Another big factor that worries him is the war in Ukraine and its impact on commodities such as food and fuel . Oil prices have all but had to rise, possibly hitting $150 or $175 a barrel , due to disruptions to oil supplies from the worst European conflict since World War II, he said. "The war went bad, with unintended consequences. We didn't act appropriately to protect Europe from what could happen to oil in the short term," he said.

At JPMorgan's investor conference last week, Dimon called his worries about the economy a dark cloud that could dissipate. During the full-day meeting, Dimon and his deputies provided more investment details and the latest data on interest income, boosting JPMorgan shares.

But since then, his concerns appear to have deepened.

Central banks, commercial banks and foreign exchange firms were the top three buyers of U.S. Treasuries in response to the 2008 financial crisis, he said Wednesday. This time around, market participants don't have the ability or willingness to absorb that much U.S. debt , he warned. "It's a huge change in global money flows, and I don't know what the impact will be, but I'm ready for at least some big volatility ," he said.

One possible step the bank could take in response to the impending hurricane is to push customers to move a type of lower-quality deposits called "non-operating deposits" elsewhere, such as money market funds . This will help the bank manage its capital requirements under international rules and could help absorb a surge in bad loans.

"With a lot of uncertainty about capital, we're going to have to act," he said. "I kind of want to cut back on non-operating deposits again, and that's a scale we can do to protect ourselves so we can be in a tough spot. Time to serve customers. That's the environment we're in."

He said the bank's strong balance sheet and conservative accounting principles were its best protection against an economic downturn. JPMorgan has shied away from servicing a large number of FHA loans because delinquency rates can reach 5% or 10%, which is sure to happen in a downturn, he said.

US Dollar Index Daily Chart
GMT+8 June 2, 10:38 US dollar index reported 102.5359

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