Dimon said it would be reasonable to expect a 10-year Treasury note yield of 4 percent with normal growth and inflation approaching 2 percent. The fact that the 10-year is trading closer to 3 percent is probably due to continued large purchases of Treasury bonds by the Fed, which are going to taper off.
Interest rates have stayed low far longer than people anticipated they would following the financial crisis a decade ago. While banks have more capital on hand, and there is more liquidity in the system and less leverage, there are also some danger zones that didn't exist back then.
For starters, Dimon said, there is $9 trillion of assets in passive index funds and exchange-traded funds, and they are easy for investors to sell. "It is reasonable to worry about what would happen if these funds went into large liquidation," Dimon wrote.
Volatility has returned to the stock market this year after a period of historic lows, trying investors' patience. Since the crisis, Wall Street's trading function has been dramatically reduced, making it is harder for asset managers to buy and sell some securities, Dimon said. Regulation also makes it harder for banks to meet higher customer demands for even more liquidity.
"Whether this would lead to a recession or not, we don't know," he said in the letter.
"The biggest negative effect of volatile markets is that it can create market panic, which could start to slow the growth of the real economy."
J. P. Morgan reported $24 billion of profit last year on revenue of $103.6 billion. In the last five years, it has bought back nearly $40 billion of its stock. It has plans to take the benefits of President Donald Trump's tax cuts and expand its branch operations into new markets and hire thousands more workers.
Dimon has been the bank's CEO for 12 years and is expected to remain in that role for another five, though the bank recently named two of his top executives, Daniel Pinto and Gordon Smith, to the shared role of president and co-chief operating officer.
Dimon also uses the letter to lament what he calls poor public policy. "Critical thinking, analysis of facts and proper policy formation have become extremely difficult in a politicized and media-saturated environment," he said. "Often, politics misuses facts to justify a position."
He also said the government needs to improve immigration policies — including giving the "dreamers" a path to citizenship — and Social Security programs.
The CEO ends the letter talking about "global engagement." The last month has been dominated by headlines about U.S. tariffs on foreign goods and a global trade war, particularly with China, erupting over the protectionist policies. The Trump administration has also tried to rip up or abandon global trade agreements, though recently it has softened its stance.
Dimon supports efforts to reset trade relations, acknowledging some legitimate complaints, but he favors a collaborative approach with European allies when it comes to China.
More broadly, "retreating from the world is not the solution, nor is burning down the current system and starting anew," Dimon wrote. "Ceding America's leadership role on the world stage is a bad idea for everyone — inside and outside our great land."