Wall Street May Have Overpriced the Fed Rate Hike’s Impact on Citigroup Stock Spreads

Given the current political environment, a rate hike by the Federal Reserve wasn’t on my bingo card. Nevertheless, it happened and the market quickly soured on big banking giant Citigroup (C). For the midweek session, Citi stock ended up dropping more than 2%, likely a consequence of accelerated deposit beta.

While a rate hike theoretically allows banks to expand net interest income, a hawkish Fed force money-center banks to raise rates on interest-bearing deposits rapidly to retain client cash against higher-yielding alternatives like money market funds. This circumstance could compress net interest margin (NIM) gains far quicker than loan yields can reprice.