Jamie Dimon’s insights on interest rates

Publicado el 7 jun 2016

In his latest letter to shareholders, Jamie Dimon, the president of J.P.Morgan, shares his opinions about the major issues that revolutionize the finance and banking sectors. Third topic: interest rates.

Negative interest rates in the U.S. are not to worry about

 

For years, this country has had fairly consistent job growth and increasingly strong consumers (home prices are up, and the consumer balance sheet is in the best shape it’s ever been in). Housing is in short supply, and household formation is going up, car sales are at record levels, and consumers are spending the gas dividend. Companies are financially sound – while some segments’ profits are down, companies have plenty of cash.

 

Diverging interest rate policies around the world are a reasonable cause for concern

 

This said, it is natural that countries with different growth rates and varying monetary and fiscal policies will have different interest rates and currency movements.

 

More vigilance is needed on interest rates rising faster than expectation

 

We hope rates will rise for a good reason; i.e., strong growth in the United States. Deflationary forces are receding – the deflationary effects of a stronger U.S. dollar plus low commodity and oil prices will disappear. Wages appear to be going up, and China seems to be stabilizing.

 

Finally, on a technical basis, the largest buyers of U.S. Treasuries since the Great Recession have been the U.S. Federal Reserve, countries adding to their foreign exchange reserve (such as China) and U.S. commercial banks (in order to meet liquidity requirements). These three buyers of U.S. Treasuries will not be there in the future. If we ever get a little more consumer and business confidence, that would increase the demand for credit, as well as reduce the incentive and desire of certain investors to buy U.S. Treasuries because Treasuries are the “safe haven.” If this scenario were to happen with interest rates on 10-year Treasuries on the rise, the result is unlikely to be as smooth as we all might hope for.

 

 

Compiled by Jeanne Yizhen Yin

 

 

You can also read the original letter to the shareholders.

 

Already published:

 

To come:

  • Big data & Privacy protection
  • Art of governance