For much of 2025, Wall Street has been betting on one outcome: that the Federal Reserve will soon cut interest rates. After more than a year of holding borrowing costs at multi-decade highs, investors believe the central bank will use its September 17 meeting to deliver a long-awaited policy shift.
Recent economic data has encouraged that view. The August payroll report showed the economy added just 22,000 jobs, a steep drop from prior months. Inflation, while easing from its 2022–2023 peaks, remains stubbornly above the Fed’s 2% target. The combination has fueled expectations that policymakers will finally move to support growth.
Markets have already priced in at least a 25 basis point cut, and some are even betting on a larger 50-point move. Equities have surged on this outlook, with the S&P 500 hitting more than 20 record highs this year. The Nasdaq, Dow, and Russell 2000 have also climbed.
Yet JPMorgan warns that the rally may be on shaky ground. In a research note this week, the bank cautioned that the Fed’s move could trigger a “sell the news” reaction rather than extend the rally.
Why the Fed’s Cut May Backfire
“Positioning looks stretched,” said Andrew Tyler, head of U.S. market intelligence at JPMorgan. “With optimism already priced in, the risk is that a rate cut leads investors to take profits.”
A “sell the news” event occurs when markets rally strongly ahead of a widely expected outcome, only to reverse once that outcome materializes. In this case, equities could stumble if the Fed cuts rates exactly as expected, since the move is already reflected in valuations.
The danger is compounded by weakening corporate buybacks, a slowdown in retail trading activity, and heavy concentration in a handful of large technology stocks. JPMorgan notes that these factors leave markets vulnerable to even a modest shift in sentiment.
The Fed’s Dilemma: Jobs vs. Inflation
The Federal Reserve is caught between conflicting pressures. The labor market is slowing, which increases the case for easing monetary policy. Yet inflation has not fallen far enough to justify an aggressive pivot.
The Fed’s preferred inflation gauge, the Personal Consumption Expenditures index, rose 2.6% year-over-year in July. The Consumer Price Index climbed 2.7% in the same period, while producer prices jumped 3.3%. New CPI and PPI reports due this week will likely influence the Fed’s language and tone at the September meeting.
Cutting rates while inflation is still above target could be interpreted as a sign that the Fed is more concerned about preserving jobs than restraining prices. That would raise questions about the central bank’s long-term credibility on inflation control.
September’s Troubled History
The timing adds another layer of risk. September has historically been a weak month for U.S. stocks. Research from Robinhood strategist Stephanie Guild shows that since 2002, the S&P 500 has averaged a 0.9% decline in September, the only month with a consistent negative record over the last two decades.
That track record matters in 2025. With valuations stretched and investor positioning heavily tilted toward a bullish outcome, any disappointment could be amplified by seasonal weakness.
Other Analysts See Opportunity
Not all strategists are as cautious. Goldman Sachs recently revised its year-end forecast for the S&P 500 higher, arguing that stocks typically perform well once the Fed begins a new cycle of rate cuts. The bank expects the United States to avoid a recession, with easier monetary policy fueling additional growth.
But even bullish analysts recognize the potential for turbulence. Chris Larkin, managing director of trading and investing at E*TRADE, wrote that last week’s volatility “highlights a possible crack in the market’s ‘bad news is good news’ mentality.” He added that with rate cuts now “baked into forecasts,” further signs of economic weakness could be received more negatively than before.
Beyond the Fed: Trade, Debt, and Geopolitics
Monetary policy is only part of the story. Broader macroeconomic risks also loom large.
Tariff policies remain a source of concern. Higher import costs are filtering through to consumers and businesses, potentially fueling inflationary pressures even as growth slows.
At the same time, the U.S. national debt has reached record levels, and interest payments are consuming a growing share of federal spending. Rising debt costs limit fiscal flexibility and could weigh on long-term growth.
Global geopolitics also play a role. Tensions in Asia and the Middle East continue to unsettle energy markets and global trade flows. Any escalation could add another layer of volatility to already fragile markets.
Implications for Investors
For investors, the key question is how to prepare for potential turbulence. A Fed cut may be welcomed in the short term, but history suggests markets often reassess once the policy shift is in place. If optimism fades, traditional safe-haven assets could draw increased demand.
Gold has already hit record highs in 2025, supported by central bank purchases and investor inflows. Rate cuts typically weaken the U.S. dollar, which tends to boost precious metals. Silver, with its mix of industrial and monetary demand, has also attracted attention as a hedge against uncertainty.
Treasuries remain another option, though yields have been volatile as markets debate the Fed’s path forward. For equity investors, sector rotation may play a role, with defensive industries gaining appeal if growth concerns intensify.
The Road Ahead
All eyes are now on upcoming inflation reports and the Fed’s September 17 decision. Whether policymakers opt for a quarter-point or half-point cut, the reaction may depend more on the central bank’s guidance for the months ahead.
If the Fed signals further easing into 2026, bullish sentiment could hold. But if it emphasizes caution, or if inflation proves stickier than expected, markets may retrace.
JPMorgan’s warning is a reminder that not all policy shifts bring the outcomes investors expect. A rate cut may not be the beginning of another leg higher, but rather the catalyst for volatility as markets reconsider the balance between slowing growth and persistent inflation.
JPMorgan Warns Fed Rate Cut Could Spark Market Selloff
Wall Street has been betting on rate cuts for months. JPMorgan warns the long-awaited pivot could actually spark a selloff. Here is the reasoning behind it.
For much of 2025, Wall Street has been betting on one outcome: that the Federal Reserve will soon cut interest rates. After more than a year of holding borrowing costs at multi-decade highs, investors believe the central bank will use its September 17 meeting to deliver a long-awaited policy shift.
Recent economic data has encouraged that view. The August payroll report showed the economy added just 22,000 jobs, a steep drop from prior months. Inflation, while easing from its 2022–2023 peaks, remains stubbornly above the Fed’s 2% target. The combination has fueled expectations that policymakers will finally move to support growth.
Markets have already priced in at least a 25 basis point cut, and some are even betting on a larger 50-point move. Equities have surged on this outlook, with the S&P 500 hitting more than 20 record highs this year. The Nasdaq, Dow, and Russell 2000 have also climbed.
Yet JPMorgan warns that the rally may be on shaky ground. In a research note this week, the bank cautioned that the Fed’s move could trigger a “sell the news” reaction rather than extend the rally.
Why the Fed’s Cut May Backfire
“Positioning looks stretched,” said Andrew Tyler, head of U.S. market intelligence at JPMorgan. “With optimism already priced in, the risk is that a rate cut leads investors to take profits.”
A “sell the news” event occurs when markets rally strongly ahead of a widely expected outcome, only to reverse once that outcome materializes. In this case, equities could stumble if the Fed cuts rates exactly as expected, since the move is already reflected in valuations.
The danger is compounded by weakening corporate buybacks, a slowdown in retail trading activity, and heavy concentration in a handful of large technology stocks. JPMorgan notes that these factors leave markets vulnerable to even a modest shift in sentiment.
The Fed’s Dilemma: Jobs vs. Inflation
The Federal Reserve is caught between conflicting pressures. The labor market is slowing, which increases the case for easing monetary policy. Yet inflation has not fallen far enough to justify an aggressive pivot.
The Fed’s preferred inflation gauge, the Personal Consumption Expenditures index, rose 2.6% year-over-year in July. The Consumer Price Index climbed 2.7% in the same period, while producer prices jumped 3.3%. New CPI and PPI reports due this week will likely influence the Fed’s language and tone at the September meeting.
Cutting rates while inflation is still above target could be interpreted as a sign that the Fed is more concerned about preserving jobs than restraining prices. That would raise questions about the central bank’s long-term credibility on inflation control.
September’s Troubled History
The timing adds another layer of risk. September has historically been a weak month for U.S. stocks. Research from Robinhood strategist Stephanie Guild shows that since 2002, the S&P 500 has averaged a 0.9% decline in September, the only month with a consistent negative record over the last two decades.
That track record matters in 2025. With valuations stretched and investor positioning heavily tilted toward a bullish outcome, any disappointment could be amplified by seasonal weakness.
Other Analysts See Opportunity
Not all strategists are as cautious. Goldman Sachs recently revised its year-end forecast for the S&P 500 higher, arguing that stocks typically perform well once the Fed begins a new cycle of rate cuts. The bank expects the United States to avoid a recession, with easier monetary policy fueling additional growth.
But even bullish analysts recognize the potential for turbulence. Chris Larkin, managing director of trading and investing at E*TRADE, wrote that last week’s volatility “highlights a possible crack in the market’s ‘bad news is good news’ mentality.” He added that with rate cuts now “baked into forecasts,” further signs of economic weakness could be received more negatively than before.
Beyond the Fed: Trade, Debt, and Geopolitics
Monetary policy is only part of the story. Broader macroeconomic risks also loom large.
Tariff policies remain a source of concern. Higher import costs are filtering through to consumers and businesses, potentially fueling inflationary pressures even as growth slows.
At the same time, the U.S. national debt has reached record levels, and interest payments are consuming a growing share of federal spending. Rising debt costs limit fiscal flexibility and could weigh on long-term growth.
Global geopolitics also play a role. Tensions in Asia and the Middle East continue to unsettle energy markets and global trade flows. Any escalation could add another layer of volatility to already fragile markets.
Implications for Investors
For investors, the key question is how to prepare for potential turbulence. A Fed cut may be welcomed in the short term, but history suggests markets often reassess once the policy shift is in place. If optimism fades, traditional safe-haven assets could draw increased demand.
Gold has already hit record highs in 2025, supported by central bank purchases and investor inflows. Rate cuts typically weaken the U.S. dollar, which tends to boost precious metals. Silver, with its mix of industrial and monetary demand, has also attracted attention as a hedge against uncertainty.
Treasuries remain another option, though yields have been volatile as markets debate the Fed’s path forward. For equity investors, sector rotation may play a role, with defensive industries gaining appeal if growth concerns intensify.
The Road Ahead
All eyes are now on upcoming inflation reports and the Fed’s September 17 decision. Whether policymakers opt for a quarter-point or half-point cut, the reaction may depend more on the central bank’s guidance for the months ahead.
If the Fed signals further easing into 2026, bullish sentiment could hold. But if it emphasizes caution, or if inflation proves stickier than expected, markets may retrace.
JPMorgan’s warning is a reminder that not all policy shifts bring the outcomes investors expect. A rate cut may not be the beginning of another leg higher, but rather the catalyst for volatility as markets reconsider the balance between slowing growth and persistent inflation.
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