How FOMC Disclosures Affected Major U.S Banks

  How FOMC Disclosures Affected Major U.S Banks The Federal Reserve's Recent Claims Inflation May Not Be Temporary And May Raise Rates Earlier Than Expected One Reason For The Major U.S. Banks Falling

What happened?

Leading US bank stocks fell today after the US Federal Reserve indicated that inflation may not be as temporary as some people think. Bank of America (NYSE:BAC) fell more than 4% on Thursday, and JPMorgan Chase (NYSE:JPM) fell more than 2,9%. Some major banks also suffered similar losses.

What Actually Happened?

The Federal Open Market Committee (FOMC) on Wednesday surprised the market with a signal that it could accelerate the rate hike, which is currently close to zero, affecting other rates. The FOMC, which previously announced that interest rates will be close to zero until 2024, did not change rates as expected, but the market was quite surprised when it stated that interest rate hikes could start in 2023.

The prepared presentation shows that there will be two rate hikes in 2023!

The expectation of an increase in inflation after the end of the incentives and closures due to the pandemic was a hot topic among investors, but the belief that it was temporary was also quite high. The fact that the FOMC initially pointed to an earlier-than-expected rate hike means they view inflation as a longer-term threat. "This is not what the market expects," economist James McCann made a statement to CNBC.

The Fed's Latest Statements Cast the Claims That the Recent Increase in Inflation Is Temporary!

What will happen!

What effects might FOMC decisions have on banks?

Inflation can be both good and bad. Interest rate increases cause banks to earn net interest income much more than loans. Large banks, especially Bank of America and JPMorgan, can make billions of dollars in profits in net interest income from a 1 percent increase in the federal funds rate. On the other hand, inflation can also lead to a lack of spending and credit demand, which is an important way for banks to make money. Some small interest rate hikes, on the other hand, may sooner or later increase their profits by providing an environment for banks to lend at higher rates. In addition, rising rates will increase bank deposit costs and increase the profit margins of banks. As a result, slightly higher interest rates will benefit all major banks!    

Source: The Motley Fool

 

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