FILE PHOTOS: Signs of JP Morgan Chase Bank, Citibank and Wells Fargo & Co. bank are seen in this combination photo from Reuters files. REUTERS/File PhotosNEW YORK, Jan 27 - U.S. banks will enjoy stronger growth this year from their "bread-and-butter" business of taking deposits and lending money as the U.S. economy expands and the Federal Reserve prepares to raise interest rates for the first time in three years.
Net interest income, the difference between what banks earn from lending and pay out on deposits and other funds, declined during the pandemic due to interest rate cuts and a drop in borrowing. But this is about to change in 2022.The Fed on Wednesday signaled it is likely to raise U.S. interest rates in March. Federal funds futures have priced in another three rate hikes later in the year.
Executives said the changing outlook for interest rates will make forecasting net interest income uncertain. But other factors also support an increase. Wells Fargo said that higher rates account for almost two-thirds of the increase it expects with loan growth and balance sheet changes supplying the rest.