The Fed just lowered interest rates. Here is 1 bank stock to buy.

For the first time in more than four years, the Federal Reserve narrowed the target range for the benchmark federal funds rate, announcing a half-point rate cut on Wednesday. Lower interest rates can serve as an adrenaline rush for stocks, as lower Treasury yields make riskier assets more attractive.

Banks and other financial companies should also benefit, as long as there is no severe recession. Here is a bank stock to buy.

A potential increase in earnings

While banks are known to perform well when rates rise, the yield curve is more important. Over the past two years, the yield curve has been inverted, meaning that longer-dated T-bills are yielding less than shorter-dated ones. Now the yield curve is sloping, which is good for the sector as banks generally borrow short-term and lend long-term. One bank that should benefit is JPMorgan Chase (JPM 1.77%)largest US bank by assets.

Now, this may not happen right away. At a recent industry conference, JPMorgan Chase Chief Operating Officer Daniel Pinto said he thought consensus estimates for net interest income (NII) in 2025 were too high. NII is essentially the difference between what banks make on interest-earning assets, such as loans, and pay off interest-bearing liabilities, such as deposits. Pinto specifically cited the potential decline in interest rates as a reason why the consensus was likely too high. JPMorgan is asset sensitive and therefore NII, a key source of income, benefits from rising rates. Over time, the steep yield curve will benefit the bank. But deposits change with a lag, so the company won’t immediately benefit from lower deposit prices.

However, NII could also benefit from increased lending, which is yet to be assessed. According to consensus estimates provided by Visible Alpha, average loan balances, which make up a large part of the NII calculation, are projected to grow by only about 3.25% in 2025. That would be JPMorgan’s slowest loan growth in four years years. The management bemoaned the revenue calls about how loan growth has been reduced.

Businesses, concerned about the macro outlook, waited for rates to drop. Another big bank pointed out in earnings calls that capital spending as a percentage of revenue, as well as inventory growth rates, were below historical averages. This is usually a leading indicator of business credit growth. Now, with some more clarity on the rate outlook, companies may now be more inclined to draw on their lines of credit and invest.

The other nice thing about JPMorgan is that it runs several strong banking businesses that can help balance each other out. JPMorgan’s investment banking division is one of the strongest in the world, and mergers and acquisitions (M&A) and initial public offerings (IPOs) have declined in the high interest rate environment. Although these revenues are very difficult to forecast, lower interest rates should stimulate activity and lead to further revenue growth.

Lower interest rates should also help lending and ease pressure on consumers who have felt the pinch from higher prices, as well as commercial property loans that may have had to deal with higher costs associated with insurance or building materials. Credit has held up well at JPMorgan, but the lower rates will provide some relief as to where delinquencies and loan loss rates could have gone in the future if interest rates had remained higher for longer .

Finally, while never a major issue for JPMorgan, the bank has unrealized paper losses from things like underwater securities. They will be recovered over time — and faster — as interest rates fall. We estimate that the unrealized losses on the securities at the end of the second quarter equate to nearly $4 of lost book value, which is the banks’ transaction relative to.

Long-term benefits from falling interest rates

While there may be some short-term headwinds for NII, JPMorgan will benefit from lower interest rates and a steepening of the long-term yield curve. These should reignite loan growth and eventually allow the bank to revalue smaller deposits. In addition, lower interest rates could reignite M&A and IPO activity, which would help investment banking. It should also provide relief to consumers and businesses and prevent the loan loss rate from rising too high. Ultimately, lower rates will help JPMorgan recover its lost book value.

All of this bodes well for the stock, which I still consider a good long-term buy.