Labour market conditions have played major role in the Federal Reserve’s monetary policy decision this year
Bank of America Corp (NYSE:BAC) stock is closely watched by investors when the jobs week arrives. Jobs report is expected to be released on Friday for September. Federal Reserve has been very sensitive towards its monetary policy by the labor market conditions. Bank of America remains the biggest beneficiary amongst the major US banks by the contractionary monetary policy.
Last jobs report was disappointing for the Federal Reserve and the US economy. However, the unemployment rate remains constant to its record lows below 5%. The Federal Reserve is expected to increase the interest rates as soon as December, according to majority of the analysts. However, the argument remains if the US economy has enough growth to withstand the rise in rates. The last rate hike was implemented in December 2015, which was the first rate hike since the financial crisis.
Banks have struggled under the low interest rate environment, particularly the ones with bigger loan portfolios. Bank of America has half of its net income driven from net interest margins. With low rates, the net interest margin is smaller and banks generate low profits. Therefore, Bank of America’s profits were crushed by low rates, and the bank is expected to be the biggest beneficiary with higher rates.
The stock has an upward trend as the price charts witness greater highs and greater lows. The bank recently saw a drop in its stock price due to sliding banking sector. Also, Wells Fargo scandal kept big banks under spotlight from its fake account scandal, but rate hike can make the investors forget the past and allow them to focus on potential earnings for the future.
Federal Reserve chairperson Janet Yellen gave hawkish signals in the last FOMC meeting and hinted rate hike in December assuming a decent jobs report number. Several analysts expect a major monetary decision after the US presidential elections in November.