US Rate Hike Supports Financials

As expected, the Federal Reserve hiked its key interest rate from .25 percent to .50 percent in March on the back of robust employment figures and high inflation. The decision supports financial and banking stocks in the US and calms recent fears of stagflation and uncertainty.  

Interest rate guidance affects the banking sector, insurance and brokerage companies on Wall Street which has a global supply chain of products and services. Wall Street bulls scented the air and financial stocks pulled forward on the expectation of higher interest rate incomes and the potential of rising profits after a long period of low-to-negative interest rates.  

Global stock market futures like the S&P 500, FTSE and Nikkei pointed upwards on the US central bank’s guidance – which signals several more rate hikes this year towards a target of 1.9 percent. The first interest rate hike in the US since 2018 could influence other global central banks’ decisions in the months ahead.  

On top of the rate hike, the Federal Reserve expects to taper QE. 

“The Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.” Federal Reserve. 

Inflation expected to rise

Risks lie ahead for the banking sector as the COVID-19 pandemic is not yet over and geopolitical woes continue in Europe. The impact of the Ukraine conflict on the US economy is ‘highly uncertain’ and the central bank expects it to weigh on economic sentiment and pressure inflation upwards, it said.  

As investors assessed the Federal Reserve’s guidance, the US Dollar Index lost some of the ground gained during the run-up to the Federal Reserve’s announcement, while gold spot prices inched higher.  

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