Wall Street may be ready to declare victory over sky-high inflation, but Jamie Dimon thinks the battle is far from over.

The JPMorgan Chase boss said investors need to gird for a prolonged period of high interest rates due to price pressures that have been exacerbated by rising costs, increased defense spending, ballooning fiscal deficits and a burgeoning national debt.

There are a lot of inflationary forces in front of us, Dimon told Bloomberg Television on Thursday.

The underlying inflation may not go away the way people expect it to.

Dimon made the comments at around the same time that Dow Jones Industrial Average briefly crossed the 40,000-point threshold for the first time ever before retreating to just below the number at around 1:00 p.m. Eastern time.

The Dow has risen an eye-popping 6% since Jan. 1 while the S&P 500 has surged by more than 12% during the same period.

The stock market has been buoyed by robust earnings reports from tech unicorns and retail giants as well as indications from the Federal Reserve that it was done raising the benchmark interest rates.

Investors on Wall Street were further encouraged earlier this week by the latest consumer price index report which showed inflation slightly cooling — increasing the odds of a Fed rate cut sometime later this year.

But Dimon said it’s too early to pop open the champagne bottles, particularly given the possibility that “stagflation” — a term used to describe a period of high interest rates coupled with slow economic growth and high unemployment — could rear its ugly head.

If you have higher rates and God forbid stagflation, you will see stress in real estate and leveraged companies, and private credit, Dimon told Bloomberg Television.

Dimon thinks that Wall Street investors are too optimistic in their assessments of where the economy is going.

Stocks are very high, and I think the chance of inflation staying high or rates going up are higher than people think, the 68-year-old chief of the world’s largest lender said.

My view is whatever the world is pricing in for a soft landing, I think its probably half of that. I think the chances of something going wrong are higher than people think.

In Dimon’s annual letter to JPMorgan shareholders, he wrote that the bank is prepared for the eventuality that the Fed may hike interest rates even further — a prospect that the central bank’s chair, Jerome Powell, has said is “unlikely.”

Dimon told Bloomberg Television that Wall Street has bought into “a lot of happy talk” around the subject of interest rates.

He cautioned that inflation could rise at an even faster rate due to geopolitical turmoil that could push the price of oil and gas much higher, thus creating the “main stress that we’re worried about.”

Dimon said he was concerned about the “very tense” geopolitical climate, citing the Russian invasion of Ukraine, poor US-China relations, the ongoing Israel-Hamas conflict and the continued standoff with a nuclear-armed North Korea.

The banking boss urged the US to “fully and deeply” engage China, with whom it is mired in disputes over a range of issues including Taiwan, trade and human rights.

JPMorgan provides services to around 1,500 clients who do business in China. According to Dimon, the ongoing tensions between Washington and Beijing is complicating his bank’s business interests.

Theyre not leaving China, so were going to serve our clients there, were just much more cognizant the risk is higher, he said.

You look at China from a risk-reward basis, it used to be very good, its not so great any more.

Dimon warned on Wednesday that the US needs to pay down its fiscal deficit sooner rather than later before the issue turns into a far more uncomfortable crisis down the road.

America has spent a lot of money, Dimon told Sky News on Wednesday.

When asked if the US will face consequences within the next two years if it didnt bring its federal spending under control, Dimon told Sky News: I dont think its a big comeuppance and I dont think its the next couple of years, but I think it is why we have higher inflation.