JPMorgan Chase's (JPM.US) legendary CEO Jamie Dimon recently mentioned in an interview that he does not rule out the possibility of stagflation in the US economy.

However, he expressed increased confidence that inflation has fallen from its highs and is concerned that the increase in fiscal deficits and infrastructure spending, coupled with the delayed impact of previous interest rate hikes leading to high interest rates, will continue to exert pressure on the economy.

In addition, he emphasized that high inflation has not been effectively curbed, increasing the risk of stagflation.

Furthermore, the bank's president and COO, Daniel Pinto, pointed out that analysts' expectations for JPMorgan Chase's net interest income and expenses in 2025 are overly optimistic: on the interest income side, the Federal Reserve is currently planning to cut interest rates, which means that the net interest margin will narrow and the growth of interest income will be under pressure; on the cost side, the guidance provided by analysts is overly optimistic and does not take into account the prolonged inflation and the costs brought about by new investments.

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These revisions in management expectations have significantly discounted Wall Street's valuation of this large commercial bank, with JPMorgan Chase's stock price plummeting by 5.19% in an instant.

However, the pessimistic outlook on the economy is not unique to JPMorgan Chase; the investment banking leader, Goldman Sachs (GS.US), has also recently given a less positive guidance for its third-quarter performance.

Goldman Sachs CEO David Solomon expects the previous consumer business impairment to result in a pretax loss of $400 million in the third quarter, which may involve its previous cooperation with Apple (AAPL.US) on the Apple Card business and its cooperation with General Motors (GM.US) on the credit card business.

Despite the rapid growth of retail loan business, these businesses have generated high levels of bad debt due to insufficient credit risk management, and have also incurred losses due to regulatory friction.

Goldman Sachs is seeking to sell these businesses and focus on asset and wealth management to drive growth.

In addition, due to the high comparison base of the previous year and the poor trading environment for fixed income business in August, Goldman Sachs expects its trading revenue for the third quarter to possibly decline by 10%.

The Federal Reserve is very likely to cut interest rates in mid-September, and the extent of the rate cut may depend on the latest economic data.

If the rate cut accelerates, it will affect the net interest margin of commercial banks - loan interest rates will decrease with the market, but the funding costs of commercial banks may not be able to decrease in the short term, and this time difference will impact the regular business of commercial banks that are mainly based on interest income, which is also a concern for JPMorgan Chase.

In the first half of 2024, JPMorgan Chase's net interest income grew by 8% year-on-year to $45.828 billion, accounting for 49.7% of total revenue, while non-interest income surged by 25% year-on-year to $46.306 billion, accounting for 50.3% of total revenue.

Among them, investment banking business fee income increased by 35%, while the largest source of income, large client transaction income, decreased by 6% year-on-year, and asset management fee income increased by 17%.

As a diversified financial giant whose main business is commercial banking, a large part of JPMorgan Chase's revenue and profit still depends on interest income.

Therefore, the Federal Reserve's interest rate cuts in the second half of the year will affect its interest income, and since the reduction in costs is usually lagging behind interest income, the pressure on interest income growth and cost pressure will lead to a decline in the profit of interest business.

On the other hand, as the bank's senior management pointed out, high interest rates will continue for some time, and their impact on economic activity will gradually emerge, which may lead to a decline in future non-interest income, such as reduced financing needs putting pressure on investment banking business, and unprofitable capital markets leading to a decline in transaction income, which is also the scenario that Goldman Sachs is worried about.

It can be seen that although the Federal Reserve's interest rate cut at this time is necessary, it will not instantly boost the economy.

It needs time to digest the impact of the previous high interest rates and slowly permeate the positive effects of the rate cut into various economic levels.

As financial intermediaries, interest rate changes have the most direct impact on commercial banks.

In the long run, the rate cut will be beneficial to the stimulation of future economic activity, thereby promoting the growth of bank business; however, it should be noted that high interest rates will continue for some time, and this time difference will affect the performance of bank stocks in the short term, which is also estimated to be one of the reasons why Buffett reduced his holdings in Bank of America (BAC.US).