The stock market in the US can expect a steady rally only when the Fed starts to cut interest rates, JPMorgan analysts say.

The Fed will need to see the fulfillment of 3 conditions in order to start cutting the rate, according to the investment bank.

JPMorgan chief strategist Marko Kolanovic called these conditions: a marked increase in unemployment, lower inflation and a downturn in financial markets.

To curb inflation, the Fed has already raised rates by 375 basis points this year and is expected to raise another 50 basis points at its December meeting. A 25 basis point rate hike is then expected in January before the Fed finally puts the hike on hold to analyze the state of the economy.

The resilience of the economy means that the likelihood of a rate cut will be low.

As unemployment is unlikely to rise anytime soon, investors will expect both an improvement in inflation data and a slowdown in the economy and lower incomes amid a growing risk of a financial crisis.

At the same time, the onset of a genuine recession at the end of 2023, according to Kolanovic, could be the last straw that will force the Fed to soften its policy — to lower the interest rate and suspend or cancel the balance sheet reduction program.

The analyst pointed out that the onset of a recession is a disruptive event that usually reflects the interaction of Fed tightening with shocks and the response of a vulnerable private sector. So far, it is unlikely that a recession will come closer to the new year.