Please see below the ‘Daily Update’ from EPIC Investment Partners, which was received this morning (22/08/2023) and provides their views on S&P downgrading the credit rating on a number of US banks and speculation about what to expect from Jerome Powell’s (The Federal Reserve Chair) speech later this week:
S&P Global Ratings yesterday followed Moody’s Investors Service in cutting ratings in a slew of US banks and darkened the outlook for several more, citing the same mix of pressures, making life tougher for lenders. In a statement, S&P said it lowered ratings by one notch for Comerica Inc, KeyCorp, Valley National Bancorp, Associated Banc-Corp, and UMB Financial Corp, noting the impact of higher interest rates and deposit moves across the industry.
S&P also lowered its outlook for S&T Bank and River City Bank to negative and said its view of Zions Bancorp remains negative after the review. In the release with the downgrades, S&P said: “Many depositors have shifted their funds into higher-interest-bearing accounts, increasing banks’ funding costs”. Adding: “The decline in deposits has squeezed liquidity for many banks while the value of their securities, which make up a large part of their liquidity, has fallen.”
We also hear speculation about the topic of Powell’s speech at Jackson Hole this coming Friday, specifically whether the Fed chair would discuss the prospect of a higher short-term neutral rate of interest. Nick Timiraos, The Wall Street Journal’s “Fed whisperer” has as usual weighed in, noting in a series of tweets that the Fed embracing a higher short-term neutral rate as a guide for policy may be inconsistent with recent Fed commentary.
He tweeted: “Despite the Federal Reserve’s raising interest rates to a 22-year high, the economy remains surprisingly resilient, with estimates putting third-quarter growth on pace to easily exceed its 2% trend. It is one of the factors leading some economists to question whether rates will ever return to the lower levels that prevailed before 2020 even if inflation returns to the Fed’s 2% target over the next few years”. He added, “At issue is what is known as the neutral rate of interest”.
Please continue to check our Blog content for advice and planning issues and the latest investment, markets and economic updates from leading investment houses.
Carl Mitchell – Dip PFS
Independent Financial Adviser
22/08/2023