How is the Fed Handling the Current Economic Environment?
''Banks Fight a Losing Rates Battle
It sure is a weird time to be in banking.
Nearly every asset on Earth is soaring in price, from bonds to Bitcoin to Beyond Meat, as the Fed prepares to resume pumping stimulus into an economy that still seems in decent shape. But banks can't fully enjoy it, as their latest earnings reports reveal. The Fed has turned most markets into gently padded rooms where even clumsy toddlers can flail about without hurting themselves or others. That's great for the toddlers, but not so much for the traders who need volatility to make a buck. Meanwhile, super-low interest rates are a bummer for banks' net interest income, notes Brian Chappatta; Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. have reported grim numbers on that front so far this week.
Margins may get even tighter when the Fed cuts rates later this month, as everybody expects and as Chairman Jerome Powell hinted again would happen. Powell seems inclined to cut the Fed's target rate by just a quarter of a percentage point, though some observers argue for more. These include James Bianco, who writes that a half-point cut is necessary to un-invert the ''yield curve'' - making long-term rates higher than short-term ones again - and avoid a recession.
Then again, recent market sentiment and economic data have suggested aggressive Fed action may not be necessary, notes Robert Burgess. However weird it sounds to you, that might be music to bankers- ears.''