The Federal Reserve signaled Wednesday that it’s unlikely to raise interest rates for the rest of the year, prompting the stock prices of banks to decline.
In general, higher interest rates are positive for the profits of retail, commercial, and other banks, which earn interest on their substantial cash holdings in customer accounts. The announcement also caused the benchmark U.S. 10-year Treasury yield to fall to 2.52%, its lowest level in more than a year.
The S&P 500’s financial services index fell 2.1% Wednesday to 434.40. Bank of America fell 3.4% to $28.64 a share, PNC Financial fell 3.1% to $125.46 a share and KeyCorp fell 5.3% to $16.53 a share.
By contrast, the S&P Index fell 0.3% to 2,824.23, the Nasdaq Composite rose 0.1% to 7,728.97 and the Dow Jones Industrial Average declined 0.6% to 25,745.67.
Following a two-day meeting, the Federal Open Market Committee maintained that it would be “patient” as it monitors data for changes in the economy or inflation pressures. Of the 17 Fed officials helping to set interest-rate policy, 11 saw no need to raise rates this year. That’s up from only 2 officials who shared that view in December, when rising interest rates were causing stock prices to tumble.
“Given the overall favorable conditions in our economy, my colleagues and I will be patient in assessing what, if any, changes in the stance of policy may be needed,” Federal Reserve chairman said in a news conference following the FOMC meeting. “Patient means that we see no need to rush to judgment.”
Watch Chairman Powell’s statement from the #FOMC press conference:
Intro clip: https://t.co/aN3IZrnhVv
Full video: https://t.co/tM0g3ZkQJX
Press Conference materials: https://t.co/QcmwIOUUE2
— Federal Reserve (@federalreserve) March 20, 2019
Powell, who faced public criticism late last year from President Trump as well as market participants who viewed the Fed’s rate policy as too hawkish, said that rate increases may remain on pause indefinitely, depending on how the economy fares in coming quarters. “It may be some time before the outlook for jobs and inflation calls clearly for a change in policy,” he said.