Question

how do increasing federal fund rate affect JPMorgan and is it good to increase federal fund rates

Answer 1

The Federal Funds rate refers to the interest rate charged by banks for lending to other banks on overnight loans. It is also treated as a benchmark for interest rates on bank loans, credit cards, mortgage loans etc.

When the Fed Reserve increases this rate, it is referred to as a contractionary monetary policy. Higher fed funds rate indicates a higher rate of borrowing for the banks which will reduce their borrowings. As a result, they will start lending to businesses at a higher rate which will result in a lowered borrowing tendency of the businesses. This reduction in business borrowing will slow down the economy. This entire measure is taken by the Fed Reserve to control inflation, by reducing the flow of money in the economy. Hence, at times when it is needed, increasing federal funds rate is a good measure.

JP Morgan has an NBFC business which is engaged in lending to businesses for their working capital needs, long term asset acquisitions etc. Hence an increase in the fed funds rate is supposed to affect the interest rate charged by JPMC from its corporate clients, i.e, lead to an increase in the interest rates charged.

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