Supply chain problems and the delta variant of the coronavirus have dampened the economic recovery, but U.S. consumer strength should help the current recovery continue into 2022, JPMorgan Chase CEO Jamie Dimon said Monday.
“I would be optimistic about next year because we will achieve a more normal economy,” said Dimon during a 30-minute interview at the annual Institute of International Finance. Jitter related to the highly transferable Delta variant and interruptions in the supply chain could only be temporary, he said.
Dimon and Citigroup chairman John Dugan addressed issues such as central bank policy, inflation, cryptocurrency and the performance of the banking sector during the COVID-19 lockdown.
JPMorgan is seeing some early signs of credit growth, particularly auto loans, but the economy could be at a tipping point with inflation.
“The magnitude of the global fiscal stimulus has been exceptional – it’s hard to say it won’t have an inflationary effect,” said Dimon. The stock market has already priced in 10-year Treasury rates of around 3.5%, but not as high as 5%, he said. As of the last review, the 10-year government bond yield was around 1.6% on Friday, with the bond market closed on Monday for the Indigenous People’s Holiday / Columbus Day.
Banking regulations on Legal Liquidity Ratios (SLR) and Liquidity Coverage Ratios (LCR) should be reassessed as those size constraints have limited banks’ ability to lend money during last year’s COVID lockdown, Dimon said.
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Dimon, who met with President Joe Biden last week, urged lawmakers to overlook the debt ceiling debate and pass an infrastructure measure. With economic expansion, the country will solve its debt problems more easily, just as it did after World War II.
“When you are a policy maker, growth, growth, growth is important,” said Dimon.
Policy makers should ask first what makes sense to help the country rather than what is helping their customers, said Dimon, who added that he intends to write a column on the matter.
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Dimon and Dugan both said that cryptocurrencies are most likely to be regulated in the style of traditional sources of capital at some point. Banks have helped customers with cryptocurrency transactions on individual accounts but do not keep such assets on their balance sheets.
“It’s becoming more of a reality,” Dugan said of Bitcoin and other currencies.
Dugan and Dimon both support the role of banks in fighting climate change. Dugan said he doesn’t support tying bank capital requirements to climate change activities, but said a better way to address the problem is to check the language of risk of loss.
“Climate change poses some risk of loss for the bank, although it is not easy to quantify or identify,” he said.
For his part, Dimon reiterated his support for a carbon tax as an incentive to reduce emissions. “We believe we should focus on the climate – it’s not about hugging trees,” said Dimon.
Looking back on the impact of COVID, Dugan said banks were better prepared for this newer crisis, in part due to the changes made after the global financial crisis in 2008.
“The banks were in a good position and were able to integrate much better into the economy by drastically increasing their lending activity when they were needed most,” said Dugan. “Due to their increased strength, banks were an important part of the solution and not, as in 2008, an essential part of the problem.”