Jamie Dimon says the Fed's bond-buying pullback is an unprecedented headwind for markets — and no one knows what its effects will be

• Jamie Dimon said the Fed's planned cuts to its bond holdings are a headwind markets "have never seen before."
• The JPMorgan CEO said it's highly uncertain what the effects of the so-called quantitative tightening will be.

Jamie Dimon has said the Federal Reserve's plan to reduce its bond holdings is a countervailing force against the economy, the likes of which investors have "never seen before" — and added that the effects of it are anyone's guess.

The JPMorgan CEO said Monday the US economy remains strong, thanks in large part to consumer savings built up as activity was restricted during the coronavirus pandemic.

"But that strong economy is being met by two countervailing forces, both of which you've never seen before — high inflation and QT," he said at the bank's investor day.

QT refers to quantitative tightening, which is when a central bank reduces its holdings of bonds by either letting them mature or actively selling them.

The Fed this month pledged to start reducing its $9 trillion of assets in June, after snapping up government bonds and mortgage-backed securities in an effort to soothe markets and the economy during the pandemic. It hopes to be shedding $95 billion a month of bonds by the end of September.

Dimon said the effects of the Fed's efforts to tackle inflation by rapidly reducing its bond holdings — which comes on top of interest-rate hikes — is highly uncertain.

"The Fed's going to try to meet it, we don't know the outcome, that's your guess," he told investors. "You can have anything from a good scenario to a bad scenario."

QT is one of the major question marks hanging over markets. The Fed has never reduced its bond holdings so rapidly.

The central bank embarked on QT in 2018, after buying bonds to soothe markets in the wake of the financial crisis. But it reversed course on the policy within a year, as market volatility picked up. Analysts say the US-China trade war also contributed to the ructions in the period.

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