Supply chain woes and the delta variant of the coronavirus have dampened the economic recovery, but the strength of the U.S. consumer should help the current rebound continue in 2022, JPMorgan Chase CEO Jamie Dimon said Monday.
“I’d be optimistic about next year because we’ll be hitting a more normal economy,” Dimon said during a 30-minute interview at the annual Institute of International Finance. Jitters around the highly transmissible delta variant and supply chain disruptions may just be temporary, he said.
Dimon and Citigroup Chairman John Dugan tackled topics including central bank policy, inflation, cryptocurrency and how the banking sector performed through the COVID-19 lockdown.
JPMorgan is seeing some early signs of loan growth, particularly in auto loans, but the economy could be at an inflection point with inflation.
“The amount of fiscal stimulus globally was extraordinary — it’s hard to say it isn’t going to have an inflationary effect,” Dimon said. The stock market has already priced in 10-year Treasury interest rates of about 3.5%, but not as high as 5%, he said. At last check, the 10-year Treasury yield was at about 1.6% on Friday, with the bond market closed Monday for the Indigenous Peoples/Columbus Day holiday.
Banking regulations around statutory liquidity ratios (SLR) and liquidity coverage ratios (LCR) should be re-evaluated because these size constraints limited the ability of banks to lend money during the COVID lockdown last year, Dimon said.
Dimon, who met with President Joe Biden last week, called on lawmakers to look past the debate over the debt ceiling and pass an infrastructure measure. The country will more easily solve any debt woes with economic expansion, just as it did after World War II.
“If you’re a policy maker, growth, growth, growth is what matters,” Dimon said.
Public policy makers should first ask what makes sense to help the country, not what will help their clients, said Dimon, who added that he was planning to write a column on this topic.
Dimon and Dugan both said cryptocurrencies will most likely get regulated at some point, in the vein of traditional sources of capital. The banks have been helping clients with cryptocurrency transactions in individual accounts, but do not hold any such assets on their balance sheets.
“It’s becoming more of a fact of life,” Dugan said of bitcoin and other currencies.
Dugan and Dimon both support a role for banks in addressing climate change. Dugan said he doesn’t support tying banking capital requirements to climate change activities, but said a better way to address the issue is through a review of risk-of-loss language.
“Climate change does present some risks of loss to the bank, although they’re not easy to quantify or figure out,” he said.
For his part, Dimon reiterated support for a carbon tax as an incentive to help lower emissions. “We believe we should be focused on climate—it isn’t about hugging trees,” Dimon said.
Looking back at the impact of COVID, Dugan said banks were better prepared for this more recent crisis partly because of the changes put in place following the Global Financial Crisis in 2008.
“Banks were in a good position and were much more able to lean into the economy by dramatically increasing their loan activity when it was most needed,” Dugan said. “Because of their increased strength, banks were a key part of the solution as opposed to being a key part of the problem as they were in 2008.”