The squeeze is on and banks will be feelin’ it

We already know that savers have been hurt for a decade by extra-low interest rates. But now banks are also feeling pain.

As you probably heard, the Federal Reserve’s policy-making committee is meeting Tuesday and Wednesday this week. And on that last day the Fed is expected to cut interest rates by another quarter of a percentage point.

President Trump won’t be elated – he wants a bigger reduction in rates. And the stock market will probably cheer but not too loudly because this rate reduction has been expected for months.

Banks? They’ll cry and complain. And while you probably don’t care about forlorn bankers, this could be a major development going forward.

The heads of JPMorgan Chase and Wells Fargo have already lamented that low interest rates are squeezing their profits. Even as they are paying savers next to nothing to safeguard their money, banks are getting less and less on the loans they issue.

Rates on loans will go down some more on the Fed move. And if those lower rates don’t spur more people to borrow, then the benefits of what the Fed is doing — and what the president wants more of — will be lost.

Banks’ “margin squeeze” could be a big issue going forward.

And while Fed boss Jerome Powell and the other Fed members might not care if savers are getting screwed — although they should — they should care very much about what’s happening to banks here and overseas because of worldwide low rates.

Could this lead to another banking crisis like the one that led to the Great Recession?

David Aurelio, senior manager of equity market research at IBES for Refinitiv, says experts are now expecting bank earnings for the third quarter to rise only 5.1 percent from last year’s levels. Back in July, that expected rise was 8.3 percent.

And annual profits are expected to be up only 3.5 percent. Back in July, the upside forecast was 8.6 percent.

Low rates are mostly to blame.

Aurelio says net interest margins at banks are expected to decline from 2.65 percent to 2.57 percent because of low rates — a significant drop.

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