Over the past year, inflation has remained high, causing serious damage to consumers and investors alike. Economists hoped for better news in August, but it did not come.
Earlier this week, the U.S. Bureau of Labor Statistics released the Consumer Price Index (CPI) data for August, which measures changes in the cost of consumer goods. The data revealed that due to the rise in food and housing costs offsetting the decline in energy prices, the annual inflation rate was 8.3%.
Investors are now turning their attention to the Fed, as the Fed has been actively fighting inflation with its main tool - rate hikes. The Fed's 75 basis point rate hike in June was the largest in 28 years. The Fed raised rates by another 75 basis points in July, and investors expect a similar increase at the upcoming meeting next week. Although rate hikes increase borrowing costs, damaging most companies, bank stocks benefit. That's the reason.
One of the main ways banks make money is by charging credit rates higher than deposit rates. While some banks earn additional income from fees, others have profitable investment banking divisions, but most banks generate revenue from interest rates.
When interest rates are low, banks face challenges because this often compresses the interest spread, which is the difference between the interest charged and the amount paid. As interest rates rise...

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