Jamie Dimon, the chief executive of JPMorgan Chase & Co., stated on Friday that if banking regulations with “deep flaws” are left in place, the Federal Reserve may need to intervene to sustain the bond market due to the extreme volatility in the about $29 trillion Treasury market.
During JPMorgan’s (JPM) first-quarter earnings call, a bank analyst inquired about the volatility of longer-duration yields and the declining demand for Treasurys globally. In response, Dimon stated that the Fed could have to take action if the suggested regulatory relief is not granted.
“If they don’t, the Fed have to intermediate – which I think is just a bad policy idea, that every time there’s a kerfuffle in the markets, the Fed has to come in and intermediate,” Dimon stated.
U.S. stocks, bonds, and other assets have been experiencing extreme volatility, which earlier this week momentarily sparked concerns about liquidity. On April 2, President Trump stunned markets by proposing fresh tariffs against U.S. trading partners. However, as the commotion grew, he paused and backed off.
Dimon has long supported loosening banking regulations, including requesting adjustments to the way Treasurys are handled under the so-called supplementary leverage ratio. Recently, Fed Chair Jerome Powell stated such adjustments might enhance the operation of the Treasury market.
Prior to Trump’s initial focus on tariffs and reorganizing U.S. trade, there were great expectations for loosened banking regulations during his second term. Strong expectations for bank regulation relief even contributed to the rise in popularity of a new “basis trade” in Treasurys, which was engulfed in volatility this week.
According to Dimon, his employees have been keeping a close eye on the bond market “every minute.” Regarding the proposed changes to bank regulations, he also advised analysts to “remember, it’s not relief to the banks, it’s relief to the markets.”
The “liquidity coverage ratio treats all other securities and loans as riskier than they are,” according to JPMorgan’s 2024 annual CEO letter to shareholders, discouraging banks from serving as intermediaries, maybe “at precisely the wrong time.”
Notably, China has owned a significant amount of U.S. Treasurys, but Trump’s 90-day reprieve did not include it, leading to higher tariffs with the U.S. before the weekend.
According to a February estimate by LPL Financial, tariffs and other Trump policies may drive away Treasury purchasers, which could increase borrowing prices when the United States needs to refinancing an estimated $7.5 trillion in debt over the next three years.
A possible buyer’s strike by foreign investors in Treasurys has been feared. While the U.S. currency DXY has plummeted and equities SPX DJIA COMP have experienced sharp fluctuations, yields on longer 10-year BX:TMUBMUSD10Y and 30-year BX:TMUBMUSD30Y securities have soared higher this week.
The U.S. economy, first-quarter earnings, and consumer mood have all been negatively impacted by tariff uncertainties.
