JPMorgan Says Fed Cuts May Miss Goldilocks Market Aim

JPMorgan Says Fed Cuts May Miss Goldilocks Market Aim

In Summary

  • JPMorgan warns Fed rate cuts may not create ideal market conditions
  • Cuts expected amid slowing growth and persistent inflation pressures
  • US dollar likely to weaken; bond yields expected to decline
  • Emerging markets favored; European stocks may lag longer


Catenaa, Friday, July 04, 2025-JPMorgan strategists warn that upcoming Federal Reserve rate cuts might not produce the ideal “Goldilocks” scenario investors hope for, potentially disappointing markets.

The bank says the cuts likely will reflect a slowing economy paired with persistent inflation pressures, rather than resilient growth with subdued inflation.

A Goldilocks market refers to an economic environment that is neither too hot nor too cold, with moderate growth and low inflation. Investors see it as ideal for sustained asset gains without prompting aggressive central bank action.

London-based strategist Mislav Matejka’s team outlined three possible Fed easing paths: cuts driven by clear economic weakness; the preferred Goldilocks scenario with steady growth and low inflation; and cuts amid ongoing inflation, possibly influenced by political pressure. JPMorgan expects a mix of the first and third, signaling risks for stocks.

JPMorgan expects the dollar to decline further and US bond yields to move lower under most conditions.

Emerging-market equities tend to perform well during Fed easing cycles, and JPMorgan is maintaining an overweight stance on these markets after years of caution. European stocks, meanwhile, may face continued stagnation.

Sectors such as staples, healthcare, utilities, and technology generally outperform during Fed cuts, while industrials and financials tend to lag. The S&P 500 has gained 5% this year, lagging behind Europe’s 21% rise, as measured by the Vanguard FTSE Europe ETF.

Investors hoping for a smooth “Goldilocks” market may need to temper expectations as rate cuts approach under less favorable economic conditions.

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