JPMorgan Warns Fed's Politicized Cuts Could Spur Market Volatility, Inflation Rise

JPMorgan CEO: Fed Cuts Not Assured, Stablecoins No Threat to Banks

JPMorgan Chase & Co. has issued a cautionary warning regarding the Federal Reserve’s anticipated rate cuts, emphasizing that the central bank’s upcoming decisions could introduce new risks to global financial markets. In a Sept. 15 note, David Kelly, the bank’s chief global strategist, argued that if the Fed’s rate cut is perceived as a capitulation to political pressure, it could exacerbate volatility in equities, bonds, and the U.S. dollar. The commentary coincided with the Trump administration’s controversial appointment of Stephen Miran to the Fed Board of Governors, a move critics say undermines the central bank’s independence.

The Fed is widely expected to cut its benchmark federal funds rate by 25 basis points at its Sept. 17 meeting, marking the first reduction since December 2024. However, JPMorgan highlighted the precarious balance the Fed must strike between its dual mandate of controlling inflation and supporting employment. Kelly noted that while easing monetary policy might stimulate demand in the short term, it could ultimately weaken economic fundamentals by allowing inflation to rise above the central bank’s 2% target. “If the Fed cuts now, inflation could be 1.2 percentage points above its goal by year-end, while unemployment remains near its target,” Kelly stated, questioning the rationale for immediate action.

The bank’s concerns reflect broader skepticism about the Fed’s ability to navigate a fragile economic landscape. Recent data, including weaker-than-expected job growth and a revised unemployment rate of 4.1%, have fueled speculation about the need for rate cuts. Yet JPMorgan warned that political interference, such as President Trump’s efforts to replace Fed Governor Lisa Cook amid unsubstantiated allegations, complicates the central bank’s policy outlook. The appeals court’s recent rejection of Trump’s attempt to remove Cook underscored the legal and political challenges facing the Fed.

Market analysts have also raised concerns about the potential consequences of premature rate cuts. Bloomberg’s senior ETF analyst, Eric Balchunas, noted that investors should remain cautious as the Fed’s decision could trigger a shift in market sentiment. “The Fed’s credibility is at stake,” Balchunas said, adding that a rate cut perceived as politically motivated might lead to a reevaluation of risk assets. This sentiment aligns with JPMorgan’s assessment that markets are “frothy” and that easing now could ultimately hurt equities, bonds, and the dollar.

The bank’s warning comes amid broader uncertainty about the Fed’s long-term strategy. JPMorgan expects three additional 25-basis-point cuts in 2025, bringing the policy rate to a range of 3.25–3.5% by early 2026. However, the firm emphasized that the Fed’s path forward remains contingent on economic data, particularly inflation trends and labor market stability. “The path of least resistance is to pull forward the next cut to September, but that doesn’t mean it’s the right decision,” said Michael Feroli, JPMorgan’s chief U.S. economist.

While the focus remains on rate cuts, the content provided does not address stablecoins or their potential impact on traditional banking. References to stablecoins were absent from the source material, precluding a discussion on their role in the financial system.

---