Multiple rate hikes in a year will raise banking revenues considerably
Major financial institutions, including Bank of America Corp (NYSE:BAC), gained massive benefits from the Federal Reserve’s decision to raise interest rates. TheCountryCaller had covered in its earlier articles that how the benefit of increased rates will take a lot of time to pass onto the consumers. The FED Chairperson, Janet Yellen, said on Wednesday that the central bank raising the interest rates in the future makes sense.
Ms. Yellen hinted at rising rates in the near future while talking to the Commonwealth Club of California in San Francisco. “Waiting too long to begin moving toward the neutral rate could risk a nasty surprise down the road – either too much inflation, financial instability, or both.”
She said that if this happens, then they would have to raise the interest rates much rapidly, which would harm the economy. Ms. Yellen also said that it could be expected by the central bank to raise interest rates several times till 2019, which will then place the short-term interest rate near its long-term benchmark of 3%.
The FED Chairperson also mentioned that the economy is near its maximum employment level and the inflation is also on its right track. Her comments of the economy on track have placed her in a potential conflict with the upcoming President Donald Trump as viewed by various analysts. Her statement is a sign that years of progress and efforts made by the Federal Reserve are beginning to finally pay off. There is a risk now that the goals of the FED and the upcoming Trump administration goals will collide and may prove to be a challenge for both the sides.
The hint of increasing rates more than once a year is a good sign for large financial institutions. Due to a delay in passing the effect onto customers, the revenue for Bank of America is set to rise considerably benefitting its shareholders. The shares of the banking giant rose 2.63% in the last session closing at $22.63.