JPMorgan Chase's financial report is coming, can a 50 basis point rate cut keep the US banking industry safe?

JPMorgan Chase, the largest bank in the United States, will release its third-quarter financial report before the opening of the US stock market on this Friday, as the Federal Reserve initiates a rate cut cycle of 50 basis points, the US banking industry is far from out of the woods.

According to the latest data from LSEG and StreetAccount, Wall Street's expectations for JPMorgan Chase's third-quarter performance are as follows:

• Earnings per share: $4.01, lower than $4.33 in the same period last year;
• Revenue: $41.63 billion, higher than $39.87 billion in the same period last year;
• Net interest income: $22.73 billion, lower than $22.9 billion in the same period last year;
• Trading income: Fixed income revenue is $4.38 billion, and equity revenue is $2.41 billion.

In the past few years, JPMorgan Chase has performed well in a rising interest rate environment, reaching record levels of net income since the Federal Reserve began raising rates in 2022.

Now, with the Fed cutting rates, the market is full of questions about how JPMorgan Chase will respond to this change. Like other major banks, as the asset yield from interest-bearing assets such as loans declines, JPMorgan Chase's profit margin may be squeezed. Last month, JPMorgan Chase lowered its expectations for net interest income and expenses in 2025.

Analysts at Morgan Stanley downgraded their rating on JPMorgan Chase from "hold" to "neutral" last month.

This year, JPMorgan Chase's stock has risen by 25%, exceeding the 20% increase in the KBW Bank Index.

The US banking industry has not yet emerged from the woods

In September, the Federal Reserve cut rates significantly by 50 basis points. Generally, rate cuts are good news for banks, especially when the rate cut is not a precursor to an economic recession.

However, this process may not be smooth sailing: persistent concerns about inflation may mean that the Fed will not cut rates as aggressively as expected. Chris Marinac, research director at Janney Montgomery Scott, said in a media interview:

"The market seems to be fluctuating due to concerns about accelerating inflation, which raises doubts about whether the Fed will pause rate cuts, which also confuses me."

However, the market still expects that all US banks will eventually benefit from the Fed's easing cycle—although the timing and extent of this change are still unknown, depending on factors such as the interest rate environment, the sensitivity of bank assets and liabilities to rate cuts, etc.

Ideally, banks will benefit during a period when the cost of financing decreases faster than the asset yield rate that generates income, thereby increasing their net interest margin.

However, for some banks, their assets may reprice faster than deposits in the early stages of an easing cycle, meaning that their profit margins may be hit in the coming quarters.

On October 1st, Goldman Sachs analyst Richard Ramsden stated in a report that **due to weak loan growth and lagging deposit repricing, net interest income for large banks is expected to decline by an average of 4% in the third quarter. The report also indicates that deposit costs for large banks are expected to rise in the fourth quarter Last month, JPMorgan Chase's CEO Daniel Pinto warned investors that analysts' expectations for JPMorgan Chase's net interest income in 2025 were overly optimistic. He stated:

"Clearly, as interest rates decline, the pressure to reprice deposits will decrease, but as you know, our assets are very sensitive."

Pinto's remarks unsettled investors, leading to a sharp drop in JPMorgan Chase's stock price. Analysts revised down JPMorgan Chase's net interest income for 2025 from $91.5 billion to $89 billion.

However, there are also some offsetting factors to the negative impact of rate cuts on JPMorgan Chase. Analysts expect that lower rates will benefit the investment banking business of large banks, as there tends to be greater trading volume when rates decline