Jamie Dimon outlines his interest rates worst case scenario

After a decade of record-low interest rates, investors are still trying to get acclimated to the new higher rate environment.

Markets are still reeling from Federal Reserve Chairman Jerome Powell's comments last week when he said that the Fed is "prepared to raise rates further if appropriate, and we intend to hold policy at a restrictive level until we are confident that inflation is moving down sustainably toward our objective."

The message from the Fed was that interest rates could stay "higher for longer" if that's what it takes to get inflation under control.

Related: Hedge fund icon Bill Ackman lays out why he sees bond yields heading higher

That sentiment was reiterated by Minneapolis Federal Reserve President Neel Kashkari this week when he said "If the economy is fundamentally much stronger than we realized, on the margin, that would tell me rates probably have to go a little bit higher, and then be held higher for longer to cool things off."

JP Morgan Chase (JPM) - Get Free Report CEO Jamie Dimon is clearly reading the message the Fed is putting out and is warning his clients that interest rates they think are high now may look low by the time the Fed is done tightening.

Benchmark interest rates are at 5.5% after years of increases, the highest level they've been in 22 years. But Dimon says they could go as high as 7% in a worst-case scenario.

"If they are going to have lower volumes and higher rates, there will be stress in the system," Dimon told the Times of India. "We urge our clients to be prepared for that kind of stress."

He added that the difference in the move between 5% rates and 7% rates would be much more painful for the economy that the move from 3% to 5% was.

"Going from zero to 2% was almost no increase. Going from zero to 5% caught some people off guard, but no one would have taken 5% out of the realm of possibility," Dimon said. "I am not sure if the world is prepared for 7%."

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