The Fed is finally cutting rates, but banks aren't in the clear just yet

Published On Oct 10, 2024, 12:51 PM

The Federal Reserve's recent rate cuts are generally good for banks, as they help stem the outflow of deposits to higher-yielding alternatives. However, persistent inflation concerns may limit the extent of future cuts, causing analysts to reconsider expected improvements in banks' net interest income (NII). While larger banks might experience a decrease in NII due to slow loan growth and lagging deposit repricing, regional banks could benefit more significantly, attracting updated recommendations from analysts. The upcoming earnings reports from major banks, starting with JPMorgan Chase, will provide more insight into how these changes may affect their financial performance moving forward.

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Stock Forecasts

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Positive

With the Fed cutting rates, banks like US Bank and Zions may see increased benefits due to their asset sensitivities to lower rates. Both are recommended by analysts for their potential growth as rates drop further.

JPMView JPM chart on TradingView

Negative

JPMorgan and other large banks may face short-term challenges with NII due to stiff competition and rising deposit costs. Their recent guidance has already alarmed investors, leading to lower expectations for upcoming earnings.

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