Wall Street CEOs cautious about path of US economy

Facing questions from House lawmakers on Wednesday, bank chief executives, including JPMorgan Chase & Co.’s Jamie Dimon and Citigroup Inc.’s Jane Fraser, offered a favorable picture of an industry they say helped the economy recover from a pandemic-induced recession, while showing uncertainty about the future.

Bank CEOs also answered questions about federal regulations and brushed off GOP pushback to a credit- and debit-card code that identifies purchases made at firearms stores, in the first of two days of congressional hearings.

Mr. Dimon said competing forces are affecting the economy. They include strong consumer spending and plentiful job openings amid high inflation, disrupted supply chains, the war in Ukraine and declining consumer confidence. But he said it is difficult to accurately predict whether the Federal Reserve will succeed in achieving a soft landing, in which inflation moderates with only a mild decline in economic activity.

“Because of the war in Ukraine and the uncertainty that causes in global energy supply and food supply, there’s a chance it could be worse," he said.

Asked later about the Fed’s ability to avoid a hard landing, Mr. Dimon said: “I’m keeping my fingers crossed."

Near the end of the hearing, all the CEOs raised their hands when asked who had confidence that the Fed will have the resolve to fight inflation.

The Fed approved its third consecutive interest-rate increase of 0.75 percentage point Wednesday. Central bank officials projected they would lift the benchmark rate at least by another 1.25 percentage point by December, to a range between 4.25% and 4.5%.

Ms. Fraser said higher rates are likely to moderate growth in the U.S. and other countries. “We are very concerned about the high prices that consumers are facing in America and indeed around the world," she said.

Fed officials expect the U.S. economy to grow 0.2% in the fourth quarter of this year from a year earlier. That would be a sharp slowdown from growth of more than 5% last year.

The bank CEO hearings mark the third time since 2019 that top executives have appeared together before U.S. lawmakers. The executives appeared Wednesday at a hearing hosted by Rep. Maxine Waters (D., Calif.), chairwoman of the House Financial Services panel. They are set to appear Thursday in the Senate.

Ms. Waters pressed Wells Fargo & Co. CEO Charles Scharf on a series of regulatory and other actions, including a $250 million fine last year for a lack of progress in addressing long standing issues in its mortgage business. Mr. Scharf said the issues would take years to fix.

“I firmly believe that we are making progress," he said.

North Carolina Rep. Patrick McHenry, the top Republican on the panel, pressed the banks on the costs of regulations, remarks that come as the Fed begins a broad review of capital and other requirements.

In a future downturn, Mr. Dimon said, JPMorgan could be sitting on $1 trillion but “unable to deploy it." He praised the 2010 Dodd-Frank financial overhaul but said various postcrisis regulations had gone “a little bit too far" and needed to be recalibrated.

Banks say they have been unduly constrained by risk-insensitive, size-based capital requirements, including a capital buffer that applies to the largest firms, and another measure related to the treatment of supersafe assets such as Treasurys. Though the Fed allowed a temporary, pandemic-related reprieve from the latter requirement to expire last year, it promised to propose a broader revamp to the rule’s treatment of ultrasafe assets. It has yet to do so.

Rep. Bill Foster (D., Ill.) criticized banks for what he characterized as repeated efforts to ease postcrisis rules, suggesting the moves would put taxpayers at greater risk. Asked by Mr. Foster to raise their hands if higher postcrisis capital requirements prevented their banks from having “an extremely profitable decade," none of the executives raised their hands.

Republican lawmakers, typically allies for financial firms, have lately criticized the industry for taking what they view as liberal-leaning stances on policy issues.

Rep. Roger Williams (R., Texas) asked the executives if they agreed with a recent plan by card networks to add a new code to identify when purchases are made at firearms retailers.

The bank chiefs said the decision to create the code was made by a standards-setting group. Card networks, including Visa Inc., Mastercard Inc. and American Express Co., decided that they would adopt the new code, a move that would affect the banks that issue debit and credit cards. At Wednesday’s hearing, the executives said their firms wouldn’t use the codes to violate consumer privacy laws or to restrict gun sales.

“We don’t want to be in the business of telling American citizens what they can do with their money," said Mr. Dimon, who added that he understood GOP concerns over the issue.

Ms. Fraser said, “we do not intend to use the code to limit sales of firearms for our individual cardholders."

Gun-control advocates have pressed the financial industry to do more to help curb mass shootings, though it has been an uphill climb. They say the new merchant code could help identify suspicious gun sales. Gun-rights advocates have resisted such efforts, saying they could unfairly prevent legal gun purchases.