JPMorgan Chase’s CEO, Jamie Dimon, is preparing for potential upheaval within the nearly $30 trillion U.S. Treasury market—an event he believes might prompt the Federal Reserve to intervene, reminiscent of actions taken early in the COVID-19 pandemic.
“There will be chaos in the Treasury markets due to the multitude of rules and regulations,” Dimon remarked during a recent earnings call, cautioning that the Fed is unlikely to act until “a bit of panic sets in.”
His remarks surface amidst rising bond yields and increasing market volatility. The surging yields imply that investors are scaling back on popular strategies that capitalize on discrepancies between Treasury prices and futures, adding pressure to a market already unnerved by heightened trade tensions stemming from the ongoing U.S.-China trade conflict.
Dimon expressed concerns that existing regulations hinder banks from stepping up as purchasers during times of liquidity shortages. A similar scenario in 2020 compelled the Fed to initiate a multi-trillion-dollar bond-buying initiative to stabilize the market.
He advocates for regulatory reforms that would grant banks greater flexibility as intermediaries. One suggestion under consideration includes exempting Treasury purchases from leverage ratio assessments, allowing financial institutions to increase their holdings of government debt without breaching capital reserves.
“If those regulations remain unchanged, the Fed will have to step in, which I view as an ill-advised policy approach,” Dimon stated.
The Treasury market is integral to global finance, influencing everything from lending rates on mortgages to corporate bond yields. Dimon warned that a repeat of systemic blockage could have widespread repercussions throughout the economy.
A significant disruption in the Treasury markets that compels Fed intervention could lead some investors to consider bitcoin (BTC) as a safeguard against financial instability. This was evident in 2020 when the cryptocurrency’s value surged following the Fed’s aggressive monetary stimulus. Other aspects, such as the impact of bitcoin’s halving that year, may have also contributed to its price increase.