The material on this site is for financial institutions, professional investors and their professional advisers. It is for information only. Please read our Terms & Conditions, Privacy Policy and Cookiesbefore using this site. Please see our Subscription Terms and Conditions.


All material subject to strictly enforced copyright laws. © 2022 Euromoney, a part of the Euromoney Institutional Investor PLC.
OPINION

Will a tougher Fed give bank shares some respect?

Bank shares have failed to close a valuation gap with fintech competitors despite the prospect of higher interest income from rate hikes. Will the Fed’s newly tough stance on inflation-busting finally give bank stocks some respect?

Maca-Headmaster-Jerome-Powell-960.jpg

US Federal Reserve chair Jerome Powell sent a clear signal to markets in his Jackson Hole speech on August 26. The Fed will apply high rates to tackle inflation despite “some pain to households and businesses” in the form of slower growth.

He pointedly finished his speech by saying: “We will keep at it until we are confident the job is done."

This was an echo of the tough stance taken by Powell’s predecessor Paul Volcker, who is credited with curbing the inflationary spiral of the late 1970s and early 1980s and titled his autobiography 'Keeping At It'.

The prospect of rates that are higher for longer understandably caused a reversal of a summer rally in US stocks.

Both banks and their fintech competitors saw their shares join in this immediate downturn, prompted by the implications for a weaker economy.

The abrupt shifts in the shapes of forward interest rate curves this year will only make queries about hedging policies more pressing

The downward movement in the two sectors was roughly proportional, however. This makes less sense given that big banks have a clear upside from a Fed hiking policy in the form of higher net interest income (NII) and a potential boost to trading revenues.

The


You have reached premium content. Please log in to continue reading.

Read beyond the headlines with Euromoney

For over 50 years, our readers have looked to Euromoney to stay informed about the issues that matter in the international banking and financial markets. Find out more about our different levels of access below.

SUBSCRIBE ONLINE TODAY

Unlimited access to Euromoney.com and Asiamoney.com

Expert comment, long reads and in-depth analysis interviews with senior finance professionals

Access the results of our market-leading annual surveys across core financial services

Access the results of our annual awards, including the world-renowned Awards for Excellence

Your print copy of Euromoney magazine delivered monthly

£73.75 per month

Billed Annually

FREE 7 DAY TRIAL

Unlimited access to Euromoney.com and Asiamoney.com, including our top stories, long reads, expert analysis, and the results of our annual surveys and awards

Sign up to any of our newsletters, curated by our editors

LOGIN NOW

Already a user?

We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree