US Banks Brace for Lower Fed Rates as Earnings Season Kicks Off

As Q3 2025 earnings season begins, major US banks are adjusting their outlooks in response to signals from the Federal Reserve about potential rate cuts. While elevated interest rates have supported net interest income over the past two years, signs of a slowdown in inflation and wage growth are shifting expectations.

JP Morgan Chase, Citigroup, and Bank of America are expected to release their earnings in mid-July. Analysts anticipate a dip in net interest margins due to reduced loan activity and the possibility of monetary easing—though Fed officials have recently signaled caution, suggesting that rate cuts may be fewer or delayed beyond current market expectations.

Although consumer spending remains resilient, lending volumes in mortgage and commercial real estate continue to decline. Smaller regional banks are also under pressure, as they face tighter regulatory scrutiny and reduced access to wholesale funding markets. The KBW Nasdaq Bank Index rose by approximately 14% in Q2 2025, reflecting a degree of optimism in the banking sector, contrary to earlier flat expectations.

According to Bloomberg and CNBC, bank executives are increasingly focused on cost-cutting, digital transformation, and rebalancing their portfolios to prepare for a potential monetary policy shift. JP Morgan’s CFO Jeremy Barnum noted in a recent investor call that the bank is “prepared for a rate environment that evolves more quickly than markets currently price in.”

The broader financial services sector is also preparing for increased capital requirements. While some anticipate that the proposed Basel III Endgame rules could be implemented by 2026, this timeline remains unconfirmed by official Basel Committee updates and may vary depending on regional adoption.

Sources: Bloomberg, CNBC, Financial Times, Reuters, Wall Street Journal, MarketWatch, AP News, Federal Reserve, July 2025 reporting