Talking to CNBC on Monday, Dimon, head of the largest bank in the United States, warned that an alarming mix of headwinds could spell disaster for the US economy, including runaway inflation and the Federal Reserve’s rapid increase in interest rates in response, the Fed dumping most of its $9 trillion in bonds in a “quantitative tightening” maneuver, and the ongoing conflict in Ukraine and Western responses to it.
“These are very, very serious things which I think are likely to push the US and the world - I mean, Europe is already in recession - and they’re likely to put the US in some kind of recession six to nine months from now,” Dimon said.
Timothy Hagle, a political science professor at the University of Iowa, told Sputnik on Tuesday that whether or not the economic situation is the Biden administration’s fault, US voters are likely to blame him and punish the Democrats in the midterm elections next month.
“The political outcome for Democrats could be a loss of control of both chambers in the US Congress,” Hagle said. “Most voters, and especially those in the political middle, care more about ‘kitchen table’ issues such as jobs, the economy, and health care. When the economy is bad, as it is right now in terms of inflation, etc., voters blame the current administration.”
“Democrats and the Biden administration have tried to focus on issues where they feel they will have more success (e.g., abortion), but their attempts seem to have had little effect beyond their base. Republicans should be well-positioned to take control of Congress, but some of their candidates have had their own problems. We'll have to see whether concerns about the economy and other issues are enough to push Republicans over the top in the toss-up races.”
Hagle said the Fed’s measures taken thus far “have been inadequate” to stop inflation and stabilize the economy. However, he noted that there are many factors outside their control and that the effects of their policies are often not immediate.
“Even so, the economics experts probably should have seen the warning signs of inflation and taken preventive measures sooner than they did,” he said.
“The measures will probably result in reduced inflation at some point. The problem, however, is how long it will take and how much pain American consumers must endure until then. One must also consider the factors outside the Federal Reserve's control. One, in particular, is continued excessive government spending. Even if Republicans take control of the US Congress after the midterm elections, the Biden administration may still be willing to use executive power to continue to spend money (including such things as debt forgiveness) on its preferred programs.”
One major spending item in recent months has been US support for the Ukrainian government. Last week, US President Joe Biden signed a spending bill that included $12.3 billion in aid to Ukraine - just one of more than half a dozen massive aid bills passed since Russia launched its special operation in Ukraine in February.
“Even if one recognizes that additional spending can cause problems, the argument may be that if the spending does not occur then another problem will become even worse,” Hagle said. “That, in part, was the justification for the increased spending during the pandemic. Money spent in attempts to increase safety and stop the spread of the virus was seen as more important than concerns about the effect of additional deficit spending.”
All that said, Hagle, predicted that the outcome of efforts to mitigate the coming recession could range from “something that is not much worse than it already is and that we are able to recover from quickly” to something that could "get worse and last several years.”