Foresight Finance APP noted that a decrease in interest rates is typically good news for banks, especially when the rate cut is not a sign of economic recession. This is because lower rates will slow down the flow of funds from checking accounts to CDs, money market funds, and other high-yield options that customers have been moving towards over the past two years.

According to the Federal Reserve's forecast, the Fed lowered the benchmark interest rate by 0.5 percentage points last month, marking a turning point in its economic management strategy and signaling its intention to lower rates by a full two percentage points, boosting the outlook for banks.

However, this process may not be without obstacles: ongoing concerns about inflation may mean the Fed will not cut rates as aggressively as expected, and Wall Street's expectations for improvement in net interest income (NII) may need to be adjusted downward.

Chris Marinac, Director of Research at Janney Montgomery Scott, said in an interview, "Given the apparent re-acceleration of inflation, the market is rebounding, and one wonders whether the Fed will pause its rate hikes."

As a result, when JPMorgan reports its banking performance on Friday, analysts will seek any guidance from management on net interest income for the fourth quarter and beyond. The bank is expected to announce earnings per share of $4.01, a 7.4% decrease from the same period last year.

Still in distress.

While all banks are expected to ultimately benefit from the Fed's loose policy cycle, the timing and extent of this transition are unclear, depending on the interest rate environment and the interaction between bank assets and liabilities sensitivity to interest rate declines.

Ideally, banks will enjoy a period where the decline in funding costs is faster than the asset yield, thereby increasing their net interest margin.

However, analysts point out that for some banks, in the early stages of the loose cycle, the speed at which their assets are repriced will actually be faster than deposits, meaning their profit margins will be hit in the coming quarters.

Led by Richard Ramsden$Goldman Sachs (GS.US)$Analysts stated in a report on October 1 that due to weak loan growth and lagging deposit repricing, the net income for large banks in the third quarter is expected to decrease by an average of 4%. The report mentions that deposit costs for large banks are expected to rise in the fourth quarter.

Last month, JPMorgan's CEO expressed overly high expectations for NII next year, without providing further details, which shocked investors. Analysts say other banks may also be forced to issue such warnings.

$JPMorgan (JPM.US)$CEO Daniel Pinto told investors: "Obviously, as interest rates decline, the pressure to reprice deposits will decrease. But you know, we are quite sensitive to assets."

However, there are also counterbalances. Lower rates are expected to benefit the Wall Street business of large banks, as they often see increased trading volumes as rates decline. According to a research report from September 30th, Morgan Stanley analysts therefore recommend holding stocks in Goldman Sachs, Bank of America, and Citigroup.

Optimism for regional banks.

Regional banks are the first to bear the pressure of rising financing costs when interest rates rise, and they are seen as greater beneficiaries of falling interest rates, at least initially.

This is why Morgan Stanley analyst upgraded the ratings of US Bank and Zion Bank last month, while downgrading JPMorgan's rating from shareholding to neutral.

Portales Partners analyst Charles Peabody stated that Bank of America and Wells Fargo & Co have been reducing their expectations for NII this year. He said, coupled with the risk of loan losses higher than expected next year, 2025 might be disappointing.

Peabody said: "I have been questioning the built-in rate of increase in NII in people's models." "These dynamics are hard to predict, even if you are a management team."