The Federal Reserve announced its third interest rate cut of 25 basis points Wednesday amid persistent inflation and a softening job market. This lowered the Fed funds rates to the 3.5%-3.75% range.
Lower rates will support net interest income (NII) expansion, a critical earnings driver for banks. While lower benchmark rates can compress yields on loans and securities, the easing of funding pressures helps preserve margins.
Also, a rate cut makes refinancing more affordable, reducing the risks of defaults. Further, lower rates are expected to encourage consumers and businesses to borrow. Such increased lending activity can result in larger profitability for banks as they earn more interest on these loans.
5 Banks to Benefit From Favorable Interest Rate Backdrop
This post originally appeared at Zacks.