ZINGER KEY POINTS
- Dimon also noted that credit is already tightening up.
- He attributed high systemic liquidity behind stock market performance.
- The S&P 500 and the Nasdaq Composite are currently trending close to their peak levels in nine months.
JPMorgan CEO Jamie Dimon reportedly said everyone must be prepared for higher interest rates and noted that credit is already tightening up.
“You are already seeing credit tightening up because you know the easiest way for a bank to retain capital is not to make the next loan. So, I think you are going to see that. And I think everyone should be prepared for rates going higher from here,” Dimon said while speaking at the bank’s investor conference, according to video posted by Bloomberg.
“You should be prepared for 6-7(%),” he added.
Indeed, although the equity market is still reflecting optimism, persistent rate hikes by the Federal Reserve and the ongoing debt ceiling crisis has taken a toll on treasury yields.
The central bank’s tightening cycle may not be over yet and if it continues to hike rates, treasury yields are expected to reflect the rise. Furthermore, even if the debt ceiling crisis gets resolved, the anticipated large borrowing by the Treasury Department in the immediate months will lead to a significant quantum of treasury bills hitting the market, thereby pushing yields even higher.
The iShares 1-3 Year Treasury Bond ETF and the Vanguard Short-Term Treasury Index Fund ETF lost over 0.4% in the last five days, according to Benzinga Pro.
“The Fed doesn’t control the five or ten-year rate, they control the overnight rate. So while they’ve been raising overnight rate, there’s still too much liquidity in the system, which is why stocks are high…,” Dimon said.
Despite the crisis, the S&P 500 and the Nasdaq Composite are currently trending close to their peak levels in nine months. The SPDR S&P 500 ETF Trust gained 1.67% in the last five days while the Invesco QQQ Trust Series 1 rose 3.52%, according to Benzinga Pro.
Original Article: https://www.benzinga.com/news/23/05/32522954/jamie-dimon-thinks-everyone-should-be-prepared-for-interest-rates-going-up-from-here
