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Major U.S. Bank Rates Soar Following Hefty Fed Rates Hikes

Derek Wolfe

Updated: September 26, 2022

aggressive rate hikes
Editor’s Note:

EDITOR'S NOTE: US bank rates are about to soar as JPMorgan Chase & Co, Citigroup Inc, and Wells Fargo & Co announced higher lending rates last week. This shouldn’t surprise anyone as it’s exactly what the Federal Reserve is attempting to do: slow down the economy by discouraging the demand for spending and borrowing in order to get inflation back down to its 2% target. The Fed has already announced its plans to maintain an aggressive path toward monetary tightening. But given the year-long lag between its rate hikes and evidence of its results, how might it know whether it's taking too aggressive of a stance or one that’s not hawkish enough? Later this week, we’ll see the release of our third quarter GDP and the August personal consumption expenditures (PCE) report. The latter is the Fed’s preferred inflation measure. Keep an eye on both reports. Even if they do nothing to alter the Fed’s course, the market reaction in equities, bonds, and gold is likely to be sizable as investors attempt to piece together a reasonable outlook for this volatile and highly uncertain economy.

(Reuters) - Three major U.S. banks are raising their prime lending rates to the highest levels since the global financial crisis of 2008, following a hefty interest rate hike by the U.S. Federal Reserve.

JPMorgan Chase & Co, Citigroup Inc and Wells Fargo & Co said on Wednesday the new rates, including the latest 75 basis point hike, would take effect on Thursday.

GRAPHIC: Prime lending rates of U.S. banks Prime lending rates of U.S. banks https://graphics.reuters.com/US-BANKS/US-BANKS/dwvkrxxknpm/qCzFA-prime-lending-rates-of-u-s-banks.png

The U.S. central bank has remained steadfast in its decision to keep raising rates until data shows a sustained pullback in consumer prices.

On Wednesday, Fed Chair Jerome Powell said U.S. central bank policymakers are "strongly resolved" to bring down inflation from the highest levels in four decades and "will keep at it until the job is done," a process he repeated would not come without pain.

Central bankers are now expecting rates to rise to 4.6% by the end of next year, according to the median estimate of all 19 Fed policymakers.

A hike in interest rates typically boosts a bank's profit, since it can earn more net interest income - a metric that gauges the difference between the money banks earn on loans and pay out on deposits.

However, higher interest rates can shackle the economy and squeeze consumer demand for loans, which can ultimately hurt lenders.

"Higher interest rates are going to lead to a slowdown in both consumer borrowing as well as corporate borrowing," said Lance Roberts, chief investment strategist and economist at RIA Advisors.

"This is going to impact economic growth to a great degree as we move further into 2023," he added.

Expectations of how aggressively the Federal Reserve will raise rates in its fight against inflation hit a fresh high of 4.64% from 4.45% last week, Refinitiv data showed.

The higher terminal rate is expected to push up the banks' lending rates even further.

(Reporting by Niket Nishant and Mehnaz Yasmin in Bengaluru; Editing by Shinjini Ganguli, Shailesh Kuber and Anil D'Silva)

Originally published on Yahoo Finance.

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