Major banks rushed to raise their prime lending rates Wednesday after the Federal Reserve’s rate-setting committee, pushing to tame inflation, voted for its largest hike since 1994.
After the 75 basis-point hike was announced, numerous large and midsize banks said that they are raising their prime rate, effectively either immediately or on Thursday, from 4.0% to 4.75%.
The banks included Wells Fargo, U.S. Bancorp, Truist Financial, PNC Financial Services Group, Fifth Third Bancorp, KeyCorp, M&T Bank, Citizens Financial Group, Regions Financial, BMO Harris Bank and Webster Financial.
The decision earlier Wednesday by voting members of the Fed’s Federal Open Market Committee was nearly unanimous, with only Kansas City Fed Gov. Esther George voting against the move. George pushed instead for a 50-basis point increase.
“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher energy prices, and broader price pressures,” Fed Chair Jerome Powell said in prepared remarks.
With household expenses and borrowing costs spiking, banks are bracing for depositors to demand more interest. The only question is how much longer bankers can hold out.
“The committee is highly attentive to inflation risks,’ Powell added, noting that its monetary policy stance could be adjusted as circumstances evolve.
For banks, rising interest rates could make lending more profitable on a loan-by-loan basis, but also dampen borrower demand, lead to higher deposit costs and weigh on the value of banks’ securities holdings.
