After months of sky-high inflation, prices are finally coming down after the Fed hiked interest rates eight times without kicking off a recession. But J.P. Morgan CEO Jamie Dimon can’t shake the feeling that markets have written off the inflation battle, only to discover in horror that the villain rises from the dead in the final scene.

“People should take a deep breath on this one before they declare victory,” he told Reuters in an interview published on Thursday, warning inflation could yet prove “sticky.”

For years, stock markets have climbed to fresh records on the back of an endless supply of cheap money courtesy of the low interest rates put in place by the Federal Reserve. But pandemic inflation caused by a variety of factors forced the Fed into the policy equivalent of a U-turn at 100 miles an hour: the central bank ended its monthly cadence of money printing, began trimming the size of its bloated balance sheet and hiked interest rates from near zero to 4.75% at present. 

Those interest led hikes led to a screeching halt in the 2022 equities market, and stocks saw their worst sell-off since the global financial crisis.

Recent remarks from Fed Chair Jerome Powell that he is already seeing signs of pricing pressure cooling off have emboldened investors into believing the worst is now finally over.

And wherever you look, risk assets are rallying as FOMO—the fear of missing out—returns with a vengeance. Investors have been snapping up every bankruptcy-prone meme stock and dog-themed crypto token they can find: the riskier the better.

One more rate hike might not be enough

Jamie Dimon isn’t the only one urging caution about the markets. The market upswing has prompted warnings from noted contrarians like Michael Burry that markets have once again gotten ahead of themselves. 

In his interview with Reuters, Dimon dismissed speculation that Powell might pivot in the course of the year and start cutting rates. The CEO of the world’s most valuable bank said it would be “perfectly reasonable” for the Fed to hike another 25 basis points and leave it there in order to observe the effects tightening has on the economy. 

If inflation as measured by the Fed’s preferred yardstick, the PCE index, ends up bouncing around the 4% level, then more action may need to be taken in his view to bring it closer to Powell’s 2% annual target.

“You may have to go higher than 5%,” Dimon cautioned about interest rates. “And that could affect short rates, longer rates.” 

In March, the Fed is set to update its interest rate goal in March. In December members of the policy-setting committee had anticipated a median level of 5.1%, equivalent to a target range of 5%-5.25%. This would imply two further hikes of 25 basis points each, lifting the cost of borrowing to its highest level since September 2007. 

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