The March inflation numbers came in last Thursday at 2.4%.

The last time we saw a number that low was September of last year.

Before that, it was Q1 of 2021.

What happened in September of last year?  The Fed kicked off its easing campaign — with a 50 basis point rate cut.

So, headline CPI is running at a level that supported the launch of an easing campaign, and an aggressive start to it.

Add to this, as of April 1, the Fed has dramatically dialed down its quantitative tightening program (effectively ending it), because there were “signs of increased tightness in money markets.”

This move looks like a clue that something in the financial plumbing might be breaking.

And if we recall back to 2019, it was similarly “strains in the money markets,” that forced the Fed to slash rates, and go back to expanding the balance sheet (i.e. quantitative easing – QE).

With this in mind, let’s revisit some things Jamie Dimon (JP Morgan CEO) said about liquidity conditions back in October — and what he said this past Friday.

Back in October, he warned about the risk of volatility in the Treasury market.

He complained that the banks have tons of excess cash but can’t use it efficiently due to regulatory constraints.  It affects their ability to provide liquidity in the Treasury market, while the Fed is simultaneously extracting liquidity from the Treasury market.

And with that, he implied that we will likely see another episode of big Treasury market volatility, caused by the Fed’s quantitative tightening.

Fast forward six months, and the Fed is still extracting liquidity from markets, though now only at a rate of $5 billion per month (as of April 1).

And we’ve just had a huge spike in the 10-year yield.

What did Jamie Dimon have to say about liquidity conditions now?

He made the same case for regulatory change, for this reason:  so banks could intermediate more in the markets to provide stability, rather than the Fed.

And by Fed involvement, he means more QE.