U.S. bank stocks fell after the Federal Reserve announced it would raise the federal funds rate by 25 basis points to a range of 4.75% to 5%.
Recent bank failures have rattled markets, but the Federal Open Market Committee proceeded with a quarter-point rate hike. The Fed's Summary of Economic Projections (SEP) released March 22 alongside the rate hike decision revealed Fed officials' median expectation of a 3.3% rise in personal consumption expenditure inflation in 2023, up from December 2022's projection of 3.1%. The projections for 2024, 2025 and "longer run" inflation matched those from the December 2022 SEP of 2.5%, 2.1% and 2.0%, respectively.
After the Fed's announcement, the KBW Nasdaq Bank Index closed down 4.70% on March 22 while the S&P 500 closed down 1.65%.
"Events in the banking system over the past two weeks are likely to result in tighter credit conditions for households and businesses, which would in turn affect economic outcomes," Fed Chair Jerome Powell said during the post-meeting press conference. "It is too soon to determine the extent of these effects and therefore too soon to tell how monetary policy should respond.
"As a result, we no longer state that we anticipate that ongoing rate increases will be appropriate to quell inflation. Instead, we now anticipate that some additional policy firming may be appropriate," Powell said.
Among individual bank stocks, the biggest movers included M&T Bank Corp., which closed down 7.75%, East West Bancorp Inc., which closed down 8.57%, and Comerica Inc., which closed down 8.45%.
"We will continue to closely monitor conditions in the banking system and are prepared to use all of our tools as needed to keep it safe and sound," Powell said. "In addition, we are committed to learning the lessons from this episode and to work to prevent ... events like this from happening again."
Rent prices climbed 8.8% year over year in February, the biggest annual increase since August 1981, the Bureau of Labor Statistics reported March 14. Overall shelter prices — rent and other categories including hotel room rates and a measure of homeowners' lodging costs — climbed 8.1% annually and contributed more than 70% to the broader consumer price index's 6% rise, according to the bureau. The consumer price index is the market's preferred inflation measure.
While the overall annual rise in consumer prices was in line with economists' expectations and marked the eighth-straight decline from a summertime peak, inflation remains well above the Fed's target rate of 2%.
