JPMorgan Chase "flees" the Federal Reserve, aggressively buying US Treasuries with $350 billion.

Since 2023, JPMorgan Chase has withdrawn nearly $350 billion in cash from its Federal Reserve accounts and invested most of it in U.S. government bonds. This move is a defensive strategy the bank has adopted to counter the threat of interest rate cuts that could erode its profits. According to data compiled by industry data tracker BankRegData, as of the third quarter of this year, the bank, with assets exceeding $4 trillion, saw its balance at the Federal Reserve plummet from $409 billion at the end of 2023 to just $63 billion. During the same period, the bank increased its holdings of U.S. Treasury bonds from $231 billion to $450 billion. This move allowed it to lock in higher yields in advance in response to potential Fed rate cuts. These fund transfers reflect how the largest U.S. bank is preparing for the end of a period of easy profits. During that period, banks received compensation for depositing cash with the Federal Reserve while paying very low interest rates to most of their depositors. In early 2022 and 2023, the Federal Reserve rapidly raised its benchmark federal funds rate target range from near zero to over 5%. The central bank then began lowering its target range in late 2024 and has hinted at further rate cuts. This month, the Federal Reserve lowered interest rates to their lowest level in three years. "It's clear that JPMorgan Chase is shifting funds from the Federal Reserve to Treasury bonds," said Bill Moreland, founder of BankRegData. "Interest rates are falling, and they're getting ahead of the curve." JPMorgan Chase declined to comment. JPMorgan Chase has not disclosed the maturity of the U.S. Treasury bonds in its portfolio, nor the extent to which it uses interest rate swaps to manage risk. Unlike competitors such as Bank of America, which suffered significant paper losses on their investments when interest rates were low in 2020 and 2021, JPMorgan Chase avoided investing heavily in long-term bonds when interest rates were low. At that time, JPMorgan Chase's stable deposit base meant that the returns on its cash held at the Federal Reserve during the high-interest-rate period exceeded the costs it had to pay depositors. The latest move to shift cash to Treasuries before a rate cut helps lock in higher interest rates, thus limiting the impact of falling rates on earnings. JPMorgan Chase's withdrawal was so large that it offset the combined changes in funds held by more than 4,000 other U.S. banks at the Federal Reserve. Since the end of 2023, total deposits held by banks at the Fed have fallen from $1.9 trillion to approximately $1.6 trillion. Since 2008, banks have been able to earn interest on cash held at the Federal Reserve, providing the Fed with a mechanism to influence short-term interest rates and liquidity in the financial system. However, interest payments have surged in the past two years, reaching a staggering $186.5 billion in interest payments on reserves in 2024. The Fed's practice of paying interest on reserve balances is controversial. In October, the U.S. Senate voted to reject a bill that would have prohibited the Fed from paying this interest. Senator Rand Paul, who spearheaded the change, argued that the Fed was paying hundreds of billions of dollars to banks while leaving the funds idle. Other Republican senators, including Ted Cruz and Rick Scott, also voiced their opposition. In a report earlier this month, Paul claimed that since 2013, the top 20 recipients of the Federal Reserve's interest payments have received $305 billion, with JPMorgan Chase receiving $15 billion in 2024, while the bank's total profit that year was $58.5 billion.