The Fed continues to signal that they will increase the Fed Funds rate at their June meeting which will be held on June 12th-13th. While they continue to ponder how many more rates hikes will be required to keep inflation from rising too quickly, banks should be focusing on the increasing pressure this next hike will put on deposit rates. With top prime money fund rates just shy of 2.00%, depositors cannot be expected to ignore any further spread widening relative to bank deposit rates. Banks should not bet on the low deposit betas that have characterized the last couple of years; these low betas are not robust to further rate increases, especially at banks that have continued to add aggressively to their loan portfolios.
