The bankers gathering this week in Jackson Hole, Wyoming, are focused on all the big, macro, global issues. The confab's theme this year is "financial innovation," though the full agenda won't be released until Thursday evening. There will be papers presented, networkers networking, and of course a keynote speech from the Fed chair, Kevin Warsh.
But absolutely none of what gets said in the shadow of the Grand Tetons over the next few days will matter as much as the answer to one specific question: is the Fed going to raise interest rates? I mean, obviously there are myriad corollary questions related to that, but the real question is: just what is the Fed going to do about rates?
(Incidentally, if you've never been there, I highly recommend going to see the Grand Tetons. One of the most beautiful sites in all of the U.S. If you're up for it, hike to one of the lakes nestled up in the mountains. I promise it's worth the effort.)
The yields on government debt lately have been hitting multi-decade highs, and are high even compared to the pinned-to-the-floor rates of the pandemic period. I don't think anybody would really describe conditions as "tight," but they aren't really loose, either. If "uncomfortable" were an option, I think more than a few people might pick that option.
Interest rates matter to consumers because it tells them how much they are going to have to shell out for a house or a car, or anything else they need a loan to buy. For banks, the rate matters because it tells bankers how much they are going to have to pay for one key, critical component: deposits.
One of the most basic inputs for a bank is the cost of deposits, or rather the cost to acquire new customers who bring with them deposits. Between rising interest rates, fintechs, cryptos and neobanks making all kinds of crazy sales pitches to customers, and other banks, the cost of acquiring deposits has become not only a basic input, but a key one. And lately a rising one.
In the second quarter, 43 of the 78 banks with assets of more than $10 billion that reported second-quarter results, reported higher-than-expected costs for new deposits, according to S&P Capital IQ.
The good news is, S&P said, for now the cost of funds is pretty stable. The cost of attracting funds overall rose two basis points to 2.09% in the second quarter. What that means is that interest margins are still healthy. As I mentioned on Friday,
Deposits costs are a key risk factor and a big concern among banks, TD Securities analyst Janet Lee wrote in a research note, but for now the landscape looks stable. Even with one or two interest-rate hikes, "we continue to see a stable (net interest margins) path" through the end of next year, she said.
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You always have to remember with these kinds of data series that the numbers aren't the same for everybody. Local conditions can have a big effect on how things look outside the window of your corner branch. Smooth sailing for some isn't smooth sailing for others.
And one big problem with all this of course is that Chair Walsh is trying very much to limit how much he communicates to the market, but that's
