Earnings Season: Watch for Fed Impact on Big Banks
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Here's your money briefing. I'm J.R. Whalen at The Wall Street Journal in New York. This quarter's earnings season will give us the clearest picture to date as to how the Federal Reserve being cautious with interest rates is impacting Big Bang's general ledgers. We'll break it down in a moment. First, these money and market stories you should know. U.S. consumer prices rose 0.41% in March, mostly driven by an increase in volatile oil prices, and rising prices for energy as well as food helped push the annual headline inflation rate up to 1.86% in March,
How did March inflation and regional price trends change before earnings season?
up slightly from 1.5% in February. Also, rent prices rose 0.4% in March after several months of cooling down. But signs of moderating inflation registered across several categories. Airfares, for one, declined 0.6% in March, while prices for used cars and trucks fell 0.4%. Looking regionally around the country, the rate of inflation in the West increased 2.4% and the 12-month period ended in March of this year, while rising 1.7% in the Northeast and 1.6% in both the South and Midwest. And the Wall Street Journal markets team writes that the current stock market run-up hasn't done much to fix public pensions. That's because the amount owed to retirees is accelerating faster than assets on hand to pay those future obligations.
Boston College's Center for Retirement Research says that liabilities of major U.S. public pensions are up 64 percent since 2007, while assets are up 30 percent. In the 1980s and 1990s, double-digit stock and bond returns convinced governments they could afford widespread benefit increases, but the value of their holdings began to fall in the aftermath of the dot-com bust in the 2000s and then again during the 2008 financial crisis. State and local retirement systems lost 28% in 2008 and 2009. And even as cities and states mapped out plans to ramp up their yearly contributions to public pension funds as a way of making up for their investment losses, some struggled with lower tax revenue and increased demand for government services
in the aftermath of the financial crisis. And then there's the overall age of the population. As baby boomers aged, the number of pensioners jumped thanks to longer lifespans and a wave of retirees over the past decade, while the number of active workers remained relatively stable.
We'll enter the heart of the earnings season on Friday, April 12th, and numbers that come in from two banks in particular will give investors a peek at how the Federal Reserve's more measured approach to interest rates is affecting big banks. And Wall Street Journal reporter Jessica Menton is here with some details. So, Jessica, the numbers that come in for J.P. Morgan and Wells Fargo are significant because, as you point out in your story, big bank earnings results tend to reflect Wall Street's outlook overall for the economy.
That's correct. And it really is a bellwether for how investors see where we're headed. And some of those examples, if you look at, say, the Federal Reserve this year, they've clearly had a more dovish stance. And investors are really looking to see how has that impacted the banks and one of those areas is investors really like to see as far as when it comes to the net interest margins for banks that's really a key measure of profitability and if the fed is more dovish and they're taking more of a sort of wait and see approach when it comes to raising rates that could put a damper as far as profitability for banks but another side in the flip side of that really is jp morgan and wells fargo one of their big businesses is mortgage lending
And when you have where rates are right now, they've actually helped mortgage rates ease a bit for homebuyers. So that could be a positive because looking at J.P. Morgan's prior report, that was another area looking at mortgage lending that weighed on the bank, even though it still had made profits. So those are two key areas that I think investors are really going to hone in on.
It's like a double edged sword, the rates when they come down and being held in check like this, because it can have an impact on the banking profits.
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