The Federal Reserve this week raised the federal funds rate by 25 basis points for the first time since 2018 to fight 40-year high inflation. After Fed Chair Jerome Powell’s statement on inflation this Monday, the market expects an aggressive rate-increase cycle. Traders are forecasting that the Fed is likely to raise interest rates by 50 basis points at the end of its May and June meetings.
The Fed’s hawkish tilt is expected to benefit financial stocks significantly, given their companies’ increased interest income. The past few months have been difficult for the financial sector owing to a slow economic recovery and geopolitical crises. However, the Fed’s hawkish stance provides a great opportunity to invest in financial stocks, which are expected to surge in the near term. The bullish sentiment surrounding the financial sector is evident in Financial Select Sector SPDR ETF’s (XLF) 17.2% gains over the past year.
