JPMorgan: Fed rate cut could trigger market sell-off

Global financial markets are watching the US Federal Reserve’s monetary policy decision, scheduled to be announced on September 17. Although most investors believe the Fed will cut interest rates, JPMorgan has warned that the move is likely to be a “sell the news” move.

According to JPMorgan’s trading desk, investors have already bet on a Fed rate cut, with the expectation largely priced into stocks, bonds and a range of risk assets. When the news is officially announced, many may take advantage of the opportunity to take profits, leading to strong selling pressure rather than a new rally.

Why could the news of the Fed cutting interest rates become a “double-edged sword”?

Several key factors are causing concern among analysts:

• Inflationary pressures have not abated : Recent economic data shows that the CPI, producer price index (PPI), and personal consumption expenditure (PCE) are still higher than expected. A rate cut could weaken the dollar, boosting demand and inadvertently causing inflation to heat up again. If this scenario occurs, the Fed could be forced to resume its policy of raising interest rates – something the market does not want.

• The health of the US economy is being questioned : Recent employment reports have shown a significant slowdown, and the unemployment rate has been trending up. Some investors believe that the Fed's move to cut interest rates this time is not only to support growth, but also reflects concerns about the risk of recession.

• The “sell the news” psychological effect : In the past, whenever the Fed made a big decision that was predicted in advance, the market often reacted negatively immediately. For example, in 2019, when the Fed started its interest rate cutting cycle, the S&P 500 had a sharp correction before stabilizing again.

Relate to the current political and financial context

Notably, the current US economic landscape is different from the previous period. After Donald Trump won the election in late 2024 and returned to the White House, the new administration has promoted economic stimulus policies and put pressure on the Fed to lower interest rates faster to support businesses. However, these measures may inadvertently create inflationary risks, causing financial markets to fluctuate sharply.

An expert in New York commented: "If the Fed cuts interest rates while price pressures have not cooled down, this is not only a story of supporting growth, but also a test of investors' confidence in the ability to manage monetary policy."

Meanwhile, Wall Street investors are fiercely debating the direction of the market after September 17. Some hedge funds have begun adjusting their positions, moving to hold more cash to hedge against potential volatility.