Impact of the Federal Reserve’s Interest Rate Announcements on the Earnings of US Bank Stocks

Abstract

This paper systematically reviews domestic and foreign theoretical and empirical studies on the transmission mechanisms linking monetary policy and interest rate decisions to stock market outcomes, and further investigates the impact of the Federal Reserve’s interest rate announcements on U.S. bank stock returns. This paper establishes the theoretical foundation of banks’ stock’s reaction to the central bank’s monetary policy from the aspects of studying the existence of the existing theoretical mechanism and the common market view by including profit structure channels, liability-cost channel, riskpremium channel and expectations management channel. Moreover, it uses the typical policy cycle case of 2024 interest rates downward cut and analyses the differentiated market performance under the different size of the banks, the industrial chain’s spillover effect, the short and longterm abnormal returns and value logics of the banks’ stocks. This paper intend to use interest rate transmission to offer some reference to investors, and offer some clues for the future research about interest rate transmission and financial risk linkage. By systemically reviewing related literature, the paper distills the conclusions and methods in diverse research perspectives and the status of research outlook as well as research challenges.