US consumers may have to face a recession if they want inflation to finally go away.
At least that’s what JPMorgan President and COO Daniel Pinto said Monday.
“I think putting inflation back in a box is very important,” Pinto said. told CNBC, arguing that the Federal Reserve should continue to raise interest rates even if the economy slows. “If that causes a slightly deeper recession for a while, that’s the price we have to pay.”
Fed officials have raised interest rates five times this year in an attempt to fight inflation, but so far their efforts have not proved as successful as economists would have liked.
The most common measure of inflation in the United States, the consumer price index (CPI), rose 8.2% from a year ago in September. Although this is nearly a full percentage point below June 40 years tall of 9.1%, it is still well above that of the Fed Target rate of 2%.
And core inflation, which excludes more volatile food and energy prices, has made its own comeback. 40 years tall last month, lending weight to the argument that inflation is becoming “entrenchedin the economy.
But not all top economists and business leaders believe inflation is here to stay, or that the Fed should keep raising rates. Of billionaire investor Barry Sternlicht at William Spriggs, professor of economics at Howard Universitythere is a growing chorus of critics who say inflation is already down and the Fed should halt rate hikes before triggering a major recession.
On Monday, JPMorgan COO Pinto chastised this new group of dovish Fed watchers, pointing to his experience as a child in Argentina as proof that tackling inflation must be a top priority for the Fed.
Argentina has always faced one of the worst inflations in the world. In September, for example, consumer prices soared 83% year over year in the country. And between 1944 and 2015, Argentina average annual inflation was 204%.
Pinto recalled memories of his childhood in the South American nation, where he said the value of the Argentine peso changed so quickly due to inflation that workers could lose up to 20% of the value of their paychecks in one day if they didn’t. rush to change their money into US dollars.
Pinto said that when he was growing up, supermarkets were forced to hire “armies of people” to re-price products on an hourly basis due to inflation.
“At the end of the day, they had to remove all the tags and start again the next day,” he said.
Pinto’s experience with the devastating effects of runaway inflation led him to believe that central banks should be aggressive when fighting rising consumer prices because if they don’t, the inflation can take root in the economy as it did in Argentina, and to a lesser extent extended to the United States in the 1970s and 1980s.
“That’s why when people say, ‘The Fed is being too hawkish,’ I disagree,” Pinto said.
He went on to say that the Fed should raise interest rates to a high of 5%, nearly 2 percentage points above current levels. He said that if he did, he would increase unemployment and eventually bring inflation under control.
Pinto has more confidence in the ability of the U.S. economy to weather the pain of a recession than he has in the past. He said U.S. households and businesses still had strong balance sheets, the banking system was less leveraged, and mortgage standards were much higher than they were in 2008.
“Things that triggered problems in the past are now in a much better position,” Pinto noted. “That said, you hope nothing new will come to light.”
However, Pinto acknowledged that the potential “big black swan”, a term used to describe an unpredictable event with devastating economic consequences, is the spread of geopolitical tensions from Ukraine and Taiwan to the rest of the world.
Finally, he added that he expects the U.S. stock market to continue to slide as rate hikes weigh on corporate earnings.
“I don’t think we’ve seen the bottom of the market yet,” he said. “When you think about corporate earnings for next year, expectations may still be too high; the multiples of some stock markets, including the S&P, are probably a bit high.″