J.P. Morgan Chase chief Jamie Dimon says people should prepare for U.S. yields of 5 percent, warning investors that borrowing costs throughout the economy are likely to rise beyond even his prior forecasts.
Though the bank chief previously theorized that the yield on the benchmark 10-year Treasury note could reach 4 percent in 2018, his comments Saturday at the Aspen Institute's 25th Annual Summer Celebration Gala appeared to reflect his belief in a stronger economy.
"I think rates should be 4 percent today," Dimon said. "You better be prepared to deal with rates 5 percent or higher — it's a higher probability than most people think."
The rate on the closely followed 10-year note remains below the 3 percent level despite Dimon's expectations; it fluttered above the threshold last week before slipping back to 2.95 percent by Monday morning. The yield has struggled to stay above the 3 percent level despite a U.S. unemployment rate below 4 percent, gross domestic product above 4 percent and a swell in government stimulus in the form of tax cuts and big spending.
Some economists have hypothesized that while the economic indicators may seem healthy for the moment, the long-term outlook looks less robust and that yields of longer duration reflect a more modest growth expectation.
The 10-year yield is a benchmark that influences rates for mortgages and auto loans, among other things. So, the higher the 10-year goes, the higher mortgage rates and auto loans are. If they rise, consumers may be less likely to take out those loans, thus putting some economic growth at risk.