JPMorgan Warns Anticipated Rate Cuts May Not Significantly Boost Stock Markets: 'Fed Will Start Easing, But More In A Reactive Way'

JPMorgan has issued a cautionary note suggesting that these cuts may not significantly benefit the stock market, ahead of the anticipated Federal Reserve rate cuts.

What Happened: JPMorgan has cautioned that anticipated Federal Reserve rate cuts may not significantly propel stock markets. The firm suggests that the cuts will be reactive to slowing economic growth, potentially dampening their positive impact on equities, reported Business Insider.

In a recent research note, JPMorgan strategists, led by Mislav Matejka, stated that the Fed’s rate cuts might not be sufficient to drive a new surge in the stock market. “Fed will start easing, but more in a reactive way and as a response to weakening growth — this might not be enough to drive a next leg higher,” they wrote.

The firm’s perspective contrasts with more optimistic forecasts from other analysts. For example, a Wells Fargo analyst recently predicted a significant equity rally once the Fed eases its policy. Similarly, veteran strategist Jim Paulson suggested that the Fed’s pivot could usher in a “brand new bull market.”

Fed Chairman Jerome Powell signaled last month at the Jackson Hole Symposium that interest rate cuts are likely. The next major indicator for the Fed will be Friday’s nonfarm payrolls report, influencing the expected 25 basis point rate cut at the late-September policy meeting, according to the report.

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Why It Matters: The potential impact of Fed rate cuts has been a topic of significant debate among economists and market analysts. In late August, economists noted that inflation was “becoming boring again” as numbers aligned with targets, suggesting a resilient economy.

However, earlier in the month, some experts poured cold water on the idea of a September rate cut, arguing that sustained economic weakness was necessary before any cuts could be justified.

Adding to the complexity, Garry Evans, chief strategist of global asset allocation at BCA Research warned of an impending U.S. recession, suggesting that rate cuts might not be enough to stave off economic downturn.

Furthermore, potential supply-side shocks could prompt the Federal Reserve to pause its rate cuts, according to Brian Jacobsen, Chief Economist at Annex Wealth Management.

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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote