Why Higher Interest Rates Are Good for Bank Stocks
The Federal Reserve has raised interest rates in both of the last two Decembers, and it seems prepared to do so again next month. There's a 97% chance of that happening, in fact, according to the CME Group's FedWatch Tool.
This would be music to the ears of JPMorgan Chase (NYSE: JPM) and other banks, which make more money when interest rates are high than when they're low.
To understand why, it's helpful to think about a bank as a retail store. But instead of selling clothes or books, a bank sells money. It does so by making loans, the price of which is reflected in the interest rate. As the price of money increases, a bank's revenue follows suit.
Source: Fool.com