JPMorgan Chase CEO warns: The global economy faces a "sea of storms," and a "small wave" in U.S. debt may prompt Federal Reserve intervention

As investors strive to predict the unpredictable policies of U.S. President Donald Trump, Wall Street banks set trading records in the first quarter. However, as industry leaders look to the future, they do not have many good answers and are rarely optimistic about the outlook. When the three major U.S. banks released their industry earnings reports on Friday, terms like "uncertainty," "unknowns," and "turmoil" were repeatedly mentioned. Jamie Dimon, the head of JPMorgan Chase & Co. and one of Wall Street's most influential figures, warned on Friday that the global economy may face "stormy seas" and indicated that a "small storm" could arise in the U.S. Treasury market, prompting the Federal Reserve to intervene.

Dimon: It is important to ensure sufficient capital and liquidity to weather the "stormy seas"

In his annual letter to shareholders released on Monday, Dimon stated that tariffs could push up inflation and slow growth, but whether they would trigger a recession remains uncertain. In a media interview on Wednesday morning (just before Trump announced a 90-day suspension), Dimon expressed that he believes a recession is quite likely.

During the earnings call, Dimon noted that it is not just the economic situation that has become murky and unpredictable, but also a more significant issue: whether the Western economic and military alliances can be sustained.

Notably, Dimon emphasized the importance of maintaining a "fortress balance sheet" for banks in turbulent environments: As the largest lending institution in the U.S., JPMorgan surprised analysts by reserving $973 million for bad loans—over 40% more than analysts had estimated. Dimon stated that the company holds capital exceeding regulatory requirements and has ample liquidity,

"We believe that maintaining excess capital and sufficient liquidity in the current environment is a prudent approach."

"We can weather any 'stormy seas'."

"Perhaps when we hold this call next quarter, we won't need to guess anymore."

According to the earnings reports, JPMorgan, Wells Fargo & Co., and Morgan Stanley all exceeded profit expectations but subsequently described the tense behavior of consumers and businesses.

Media reports indicate that Trump's chaotic tariff policies and efforts to cut or even shut down government agencies have raised concerns about trade, inflation, unemployment, and potential recession. Bank executives noted that companies are pausing expansions, including the lucrative merger and acquisition business handled by Wall Street investment banks.

Dimon expressed a cautious attitude toward the economic outlook in the earnings report. He pointed out:

"The economy faces considerable turmoil (including geopolitical factors), with potential positive factors such as tax reform and deregulation, as well as potential negative factors like tariffs and 'trade wars', persistent sticky inflation, high fiscal deficits, and still relatively high asset prices and volatility."

Dimon expects that in the coming weeks, many large companies may withdraw their profit guidance when announcing first-quarter earnings. He observed that there has been a stagnation in hiring and mergers and acquisitions. "People must adapt to this entirely new environment,"

"It is said that many people have not taken action for this reason. They choose to wait and see. This affects mergers and acquisitions, impacts small and medium-sized enterprises' mergers and acquisitions, and influences people's hiring plans."

When analyst Mike Mayo asked Jamie Dimon if American companies with significant international business, like JPMorgan Chase, should be concerned about being caught in the crossfire of a trade war, Dimon replied:

"We will definitely become a target; that is what is going to happen. It’s okay."

However, Dimon pointed out that American consumers are still healthy, but recent spending has become more cautious. People are stockpiling certain goods to cope with price increases due to tariffs, but the bank has also observed a reduction in consumer spending on items like airline tickets.

The bond market will experience a "kerfuffle," and the Federal Reserve may have to intervene

Dimon stated that he expects a "kerfuffle" in the U.S. Treasury market, which will prompt the Federal Reserve to intervene.

"Due to all the rules and regulations, there will be a small kerfuffle in the Treasury market, and when that happens, the Federal Reserve will intervene—but they will wait until there is 'a bit of panic' before acting."

Long-term U.S. Treasury yields surged significantly this week. On Friday, investors continued to sell U.S. Treasuries, with the yield on the 10-year U.S. Treasury—an important benchmark for measuring the financing costs of corporate bonds, mortgages, and more—rising by as much as 16 basis points to nearly 4.6%, before slightly retreating. The yield on the 30-year U.S. Treasury also rose by as much as 12 basis points, approaching 5%, before similarly retreating.

Analysts believe that this trend not only raises questions about the attractiveness of U.S. Treasuries as a safe-haven asset but also triggers market concerns—hedge funds and other investors may be selling two popular types of leveraged trading positions: one is the spread trade between cash Treasuries and futures, and the other is the spread trade between Treasury yields and swap rates.

Looking back to March 2020, as the COVID-19 pandemic erupted globally, the U.S. Treasury market briefly became paralyzed, with many investors rapidly liquidating positions. At that time, the Federal Reserve was forced to intervene, pledging to purchase trillions of dollars in bonds and providing emergency funding to the repo market. Dimon stated that if relevant banking regulatory rules are not amended, such a situation could happen again in the future.

"When the market is extremely volatile, spreads are wide, and liquidity in the Treasury market is very low, all other capital markets will be affected. This is precisely why we need to reform the rules, not for the benefit of the banks."

There is speculation that one of the regulatory reforms the Trump administration may push for next is to exclude U.S. Treasuries from the calculation of banks' supplementary leverage ratio (SLR), allowing banks to buy large amounts of Treasuries without affecting their core capital ratios.

However, Dimon pointed out that the issue is not just with the SLR. He listed a series of "seriously flawed" regulatory rules, arguing that these need to be reformed to enable banks to play a more active intermediary role in the market.

"If these reforms can be advanced, spreads will narrow, and there will be more active traders in the market. If the reforms cannot be advanced, then the Federal Reserve will have to intervene, and I believe that is a very bad policy choice."