When the Federal Reserve cut its benchmark rate last month, it marked a turning point in the economy and communicated its intention to cut rates again, boosting prospects for banks, CNBC reports.
Lingering concerns about inflation could mean the Fed doesn’t cut rates as much as expected and Wall Street’s projections for improvements in net interest income may need to be adjusted.
While all banks are expected to benefit from the Fed’s easing cycle, the timing and weight of that shift is unknown. For some banks, their assets will reprice down faster than their deposits in the early stages of the easing cycle, meaning their margins will take a hit in the coming quarters, analysts say.
For large banks, net interest income will fall by 4% on average in the third quarter due to moderate loan growth and delayed deposit repricing, Goldman Sachs banking analysts said in an Oct. 1 note. Deposit costs for large banks will continue to rise into the fourth quarter, the note said.
Regional banks, which received the most pressure from higher funding costs when rates were climbing, are expected to benefit the most from falling rates initially.
