Will the Federal Reserve Raise Interest Rates Next Week?

The Federal Reserve has a decision to make next week. It must decide whether now is a good time to increase interest rates, the Fed funds rate in particular, which could help to staunch recent bleeding in bank stocks.

The Fed funds rate is the interest rate at which banks lend excess reserves stored at the central bank to each other. A higher rate, means they make more money doing so. Even more importantly, because the Fed funds rate is the key short-term interest rate benchmark in the United States, all other rates are likely to respond in kind, pushing up loan yields and thereby filling banks' coffers with extra net interest income.

Equity indices have ticked up to fresh session highs in recent action with the S&P 500 now sporting a gain of 0.2%.
The financial sector (+1.6%) continues picking up strength this afternoon, extending its week-to-date gain to 2.9%. This week's solid performance has been an encouragement for the broader market, not just because the heavily-weighted sector plays an important role in driving economic activity, but also because financials have struggled since pacing the stock market's post-election rally. For the year, the financial sector has added only 2.6%, which is notably lower than the S&P 500's 2017 advance of 8.9%.