Market may be underestimating risks from Fed

Jamie Dimon speaking at the 2017 Delivering Alpha conference in New York on Sept. 12, 2017.

 

Jamie Dimon, CEO of J.P. Morgan Chase, said that people may underestimate the possibility that the Fed will have to act faster to control the growing U.S. economy.

If inflation and wages grow faster than current expectations, “The Fed and other central banks may have to take more drastic actions than they currently expect … to respond to the market instead of guiding the market,” Dimon In its annual report, a letter to the shareholders of the bank.

The letter, released on Thursday, is the second CEO to look forward to following the annual Berkshire Hathaway company letter of the year. Both executives like to use lengthy letter formats to comment on management and global events. Read the full letter here.

Dimon said that the 10-year Treasury bond yield is expected to be 4%, and it is reasonable that the normal growth rate and inflation rate are close to 2%. The fact that the 10-year trading volume is close to 3% may be due to the fact that the Fed continues to purchase large amounts of U.S. national debt, while U.S. treasury bonds will gradually decrease.

Interest rates have been lower than people expect them to be after the financial crisis 10 years ago. Although the bank has more funds, and the system is more liquid and leveraged, there are still some dangerous areas at the time.

For start-ups, Dimon said that passive index funds and exchange-traded funds have $9 trillion in assets and investors are easy to sell. Dimon wrote: “It is reasonable to worry about what will happen after these funds have been cleared on a large scale.”

After a historical low, this year’s volatility has returned to the stock market. This is the patience of investors. Dimon said that since the crisis broke out, Wall Street’s trading function has been greatly reduced, and asset management companies have made it more difficult to buy and sell securities. Regulation also makes it more difficult for banks to meet higher customer demands for higher liquidity.

“This will lead to economic recession, we do not know,” he said in the letter.

“The biggest negative impact of market turmoil is that it may cause market panic, which may begin to slow down the growth of the real economy.”

J.P. Morgan reported a profit of 24 billion U.S. dollars last year with revenue of 103.6 billion U.S. dollars. In the past five years, it has repurchased nearly 40 billion US dollars of stocks. It plans to benefit from President Donald Trump’s tax cuts, expand its branches to new markets, and employ thousands of workers.

Dimon has served as the CEO of the bank for 12 years and is expected to continue to serve as the other five CEOs, although the bank recently appointed his two senior executives, Daniel Pinto and Gordon Smith, as the president and joint chief operating officer.

Dimon also used this letter to lament what he called bad public policy. He said: “In a politicized and media-saturated environment, critical thinking, analysis of facts, and appropriate policy formation have become extremely difficult. “Politics often abuse facts to justify a position. ”

He also stated that the government needs to improve its immigration policies – including “dreamers” on the civic road – and social security programs.

The CEO ended this letter and talked about “global participation.” Last month, it had been pursuing protectionist policies based on the US tariffs on foreign goods and the global trade war, especially its trade war with China. The Trump administration also tried to destroy or abandon global trade agreements, although it has softened its position recently.

Damon supported the efforts to rebuild trade relations and acknowledged some reasonable complaints, but he favored cooperation with European allies when it comes to China.

More broadly, “retreating from the world is not a solution, nor is it burning down an existing system and starting over,” Dimon wrote. “The leadership role of the United States on the world stage is a bad idea for everyone – both inside and outside our great country.”

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