How Dimon and Dalio see the future of the American economy.

While economists, strategists, and investors on both sides of the Pacific worry about the timing and scale of the next interest rate cuts, two of the most well-known names in global markets—JPMorgan’s Jamie Dimon and hedge fund titan Ray Dalio—continue to predict that interest rates may actually need to rise, as long-term inflationary pressures continue to build.

During separate statements on Tuesday evening in Asia and London, the two market veterans urged investors not to get too caught up in trying to predict or trade on future interest rate movements.

Dalio stated that the U.S. economy is “essentially in relative balance” at the moment, given the outlook for growth and inflation, and suggested that stock markets, though focused on tech stocks, are also in what he described as “equilibrium.”

However, investors who are banking on significant further interest rate cuts are “jumping ahead with their expectations, and I think the risks are more to the upside than the downside.”

Dimon also argued that U.S. interest rates “may actually stay at current levels and rise a little rather than fall.”

Why are these big players in global markets of the same opinion? Because of what Dalio calls the “ticking time bomb” of the U.S. debt situation.

Dimon says that the next interest rate move—whether a cut of 25 or 50 basis points—is far less important than the larger clouds looming over the U.S. economy.

“I think we need to worry about the deficit,” he says. The U.S. budget deficit, which according to new data from Tuesday evening stands at $1.8 trillion, is currently 7% of U.S. GDP, with total debt-to-GDP around 100%, says Dimon. But in the early 1980s, when inflation was over 14%, that figure was just 3.5% of GDP, and total debt was 35% of GDP.

“Deficits are inherently inflationary. And, you know, at some point, we have to deal with that. Can America afford a 120% debt-to-GDP ratio? Probably. But should we wait until that point? I don’t think so. I think that’s a bad way to manage risk.”

Dalio agrees. His study of debt cycles throughout history and his views on the upcoming U.S. presidential elections lead him to worry that the U.S. debt situation likely won’t be resolved by any of the candidates.

Dalio’s concern is that the increasing number of bonds needed to sustain higher deficits will become a problem, especially if there are concerns about rising geopolitical risks among foreign debt holders or worries about the peaceful transfer of power after the U.S. elections.

“There’s a risk to supply, there’s a risk to demand,” Dalio says. “When you have a lot of debt, that balance becomes very tricky because you need to keep interest rates high enough to give creditors an adequate return, without them being so high that debtors get squeezed.”

Whatever the case, Dalio expects deficits and debts to grow, and the cost of servicing this debt and paying off the principal “will increase as a percentage of revenues and put pressure on the government. That’s for sure.”

Geopolitical Concerns

Dimon, who said in March at The Australian Financial Review business forum that he sees a 65% chance of the U.S. entering a recession, refrained from making similar predictions in his Tuesday evening interview with Bloomberg, except to express caution about the belief in a soft landing for the economy. “Soft landings are hard. I hope it happens, I don’t know. I just wouldn’t bet everything on it.”

His biggest concern remains geopolitics. “I think when Ukraine was invaded, we learned the lesson that the world is not a safe place.”

Ongoing conflicts in Europe and the Middle East, and the prospect that China, Russia, Iran, and North Korea might act in coordination to weaken or change the post-World War II global order “overshadow whether we’ll have a soft or harder landing… almost everyone in business has dealt with this many times. It’s not a big deal.”

A more dangerous world means a larger U.S. military and more spending, Dimon suggested. Which, of course, brings us back to the problem of the U.S. budget deficit and the inflationary forces that Dimon believes still threaten the scenario of higher interest rates for longer.

“The world’s fiscal deficit to the United States is inflationary. The green economy is inflationary. Demographic trends are inflationary. It’s very likely that within two or three years, energy prices will also be inflationary.”

Dalio’s and Dimon’s concerns about the U.S. budget deficit aren’t necessarily new, but they take on added significance given that we are just six weeks away from what may be one of the most important U.S. presidential elections in generations.

As Dalio puts it, neither party is going to address the problem of debt and deficits. In fact, at this stage, the political platforms of Donald Trump (who is pushing for corporate tax cuts) and Kamala Harris (who wants increased fiscal spending) seem likely to worsen the problem.

If nothing else, the comments from these two should make investors hoping for a return to the days of ultra-low interest rates and easy money think twice. Dalio and Dimon are telling us that the “higher for longer” scenario remains a real risk.