Dimon expects tariffs to make "the soft landing a little bit softer"

JPMorgan Chase CEO Jamie Dimon anticipates that tariffs will begin impacting the economy in the second half of the year, potentially softening a soft landing, with a slight decrease in employment and a slight increase in inflation. Citigroup's Viswas Raghavan noted clients are preparing for tariff rates as high as 20%, though Citigroup expects revenue to rise, while Morgan Stanley CEO Ted Pick observed that new tariffs caused a pause in dealmaking activity in April, but expects a strong finish to the second quarter.

Analysis

Senior banking executives are expressing cautious views on the impending economic effects of tariffs, expected to materialize in the second half of the year. JPMorgan Chase CEO Jamie Dimon anticipates these tariffs could make a 'soft landing a little bit softer,' potentially leading to a slight decrease in employment and a marginal increase in inflation, rather than a dramatic downturn. Concurrently, Citigroup's global head of banking, Viswas Raghavan, highlighted client preparedness for tariff levels ranging from 10% to as high as 20%, fostering 'a lot of anxiety' in boardroom discussions regarding future deals. Despite this uncertainty, Citigroup projects its trading revenue to increase in the 'mid- to high-single digits' and second-quarter investment banking fees to rise in the 'mid-single digits' year-over-year, though firmwide credit costs, $2.7 billion in Q1, could see an uptick of 'a few 100 million dollars.' Morgan Stanley CEO Ted Pick observed that new tariffs in April induced a significant 'pausing' in dealmaking activity, but he anticipates a recovery, with the quarter expected to 'finish strong,' characterizing investment banking as 'a tale of two quarters.' Pick also voiced support for reviewing bank capital regulations, suggesting it is 'opportune for a repositioning' to enable banks to better support the economy during periods of instability.

Key Decisions for Investors

• Investors should monitor key economic indicators such as employment and inflation figures closely in the second half of the year for early evidence of the tariff impact as anticipated by banking executives.
• Evaluate banking sector performance by scrutinizing Q2 results, particularly for trading and investment banking revenues which Citigroup and Morgan Stanley project to be resilient, while also remaining vigilant about potential increases in credit costs as flagged by Citigroup.
• Track developments in financial regulation, as potential revisions to bank capital requirements, advocated by Morgan Stanley's CEO, could influence bank capital management strategies and shareholder returns.
• Observe M&A activity and deal flow in the coming months as a barometer of business sentiment and the actual impact of tariffs on corporate decision-making, following the initial pause and expected recovery noted by Morgan Stanley.