Jamie Dimon, the head of US banking giant JPMorgan Chase, has warned of “drastically higher” rates ahead, as the US central bank shrinks its balance sheet at a time when companies and governments are keen to borrow.will push even higher
But now the Fed is looking to implement QT, which involves shrinking its balance sheet by allowing some US government bonds and mortgage-backed securities to mature, without reinvesting the proceeds. Fed chairman Jerome Powell has suggested the US central bankInvestors are anxious that the Fed’s move to implement QT will drain liquidity from financial markets and push long-term borrowing costs sharply higher. The last time the Fed started shrinking its balance sheet was in late 2017.
The massive monetary and fiscal stimulus turbo-charged the US economic recovery, with the US jobless rate plunging from 15 per cent to less than 4 per cent in 20 months.What’s more, the US economy grew 7 per cent in 2021, despite being hit by the delta and omicron variants as well as global supply chain shortages.
[QT] will cause a massive shift in the flow of funds in and out of Treasury bonds, and, therefore, all securities.Dimon believes that “all these factors will continue in 2022, driving further growth as well as continued inflation”. And long-term interest rates are likely to rise much more sharply than they did the last time the Fed pursued QT.
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