JPMorgan Warns Fed Rate Cut Could Spark “Sell the News” Market Pullback

New York, September 8, 2025 - JPMorgan Chase cautioned on Monday that the Federal Reserve’s widely anticipated 25-basis-point rate cut on September 17 could backfire, triggering a sharp market sell-off even as equities rally ahead of the decision.

The bank’s renowned market team underscored that despite a robust bull run and renewed momentum in AI-related stocks, investors may retreat once the rate cut is official, deeming it a classic “sell the news” event.

Key Takeaways

  • Sell-the-News Risk JPMorgan maintains a “lower-conviction Tactical Bullish” stance but warns a Fed rate cut could prompt profit-taking across risk assets.
  • Inflation and Tariff Concerns Rising tariff-driven costs and persistent wage inflation from tighter labor markets pose headwinds even as economic growth shows resilience.
  • Strategic Shifts The bank recommends equity investors consider adding gold exposure to hedge against a possible dollar-weakening scenario if rate-cut expectations falter.

Market Outlook and Risks

JPMorgan’s head of global market intelligence highlighted that while AI leaders such as Nvidia and Broadcom underpin current bullish sentiment, key macro uncertainties remain. The bank pointed to three main risk factors:

  • Tariff-Induced Cost Pass-Through Additional inflationary pressures from trade tariffs could erode corporate margins at unpredictable rates.
  • Labor Market Tightness A shrinking labor pool combined with potential rate cuts may fuel persistent wage inflation, challenging Fed progress on price stability.
  • Investor Positioning Overextended long positions and muted retail participation could exacerbate volatility if the Fed’s action disappoints.

Strategy Recommendations

To cushion potential drawdowns, JPMorgan advised:

  • Diversifying into Gold A traditional haven that could benefit if rate-cut expectations undermine the U.S. dollar.
  • Monitoring Fed Communications Close analysis of Fed commentary between now and the September 17 meeting to gauge pivot probabilities and investor sentiment shifts.
  • Sector Rotation Evaluating defensive sectors less sensitive to interest-rate moves, such as utilities and consumer staples, if volatility spikes.

Next Steps for Investors

This week’s economic calendar features key inflation reports: the Producer Price Index on Wednesday and the Consumer Price Index on Thursday. These releases will offer clues on whether the Fed proceeds with the planned rate cut-or if markets need to recalibrate their expectations once more.