Borrowing costs surge as JP Morgan boss Dimon sounds alarm

Borrowing costs rose on both sides of the Atlantic as investors scaled back bets on interest rate cuts.

The US ten-year bond yield rose to 4.46 per cent – its highest level since November – while the equivalent in the UK hit a five-week high of 4.13 per cent.

The rise in bond yields – which feed through to the cost of mortgages and other loans – came amid fresh doubts over when central banks will cut interest rates and by how much.

Jamie Dimon, chief executive of investment bank JP Morgan yesterday warned that inflation may not fall as far as hoped – meaning rates will stay higher than expected for longer.

In his annual letter to shareholders, Dimon said the bank has plans for US interest rates to be anywhere between 2 per cent and 8 per cent due to the impact of high government spending.

Rate fears: JP Morgan chief exec Jamie Dimon (pictured) warned that inflation may not fall as far as hoped – meaning rates will stay higher than expected for longer

They are 5.5 per cent in the US and 5.25 per cent in the UK. 

‘It is important to note that the economy is being fuelled by large amounts of government deficit spending and past stimulus,’ Dimon wrote. 

‘There is also a growing need for increased spending as we continue transitioning to a greener economy, restructuring global supply chains, boosting military expenditure and battling rising healthcare costs.

‘This may lead to stickier inflation and higher rates than markets expect.’ 

Investors now believe there will be just two or three rate cuts in the US and UK this year. 

At the start of the year it was hoped there could be as many as six.

All eyes will be on tomorrow’s inflation figures in the US for fresh hints as to when the Federal Reserve will cut rates.

And the European Central Bank is expected to leave rates unchanged in the eurozone on Thursday before cutting this summer – possibly in June.

IMF warns on rates 

The Bank of England should be wary of leaving interest rates too high for too long amid fears over fixed-rate mortgages, the International Monetary Fund has warned.

In an update ahead of its annual meetings in Washington next week, the agency said many borrowers have been sheltered from rate hikes because their home loans have yet to come up for renewal.

And it warned the impact could be significant when these deals come to an end and households are hit by sharply higher mortgage costs. It warned ‘leaving rates higher for longer’ was now a big risk.