Powell Likely to Ignore Trump's Attack on Rate Hikes: 5 Picks

President Trump launched a personal attack on Fed Chair Jerome Powell on Aug 20, saying he was “not thrilled” with his policy of raising interest rates. Stocks declined after his comments and the U.S. dollar edged lower. Trump had levelled similar complaints against Powell at a Hamptons fundraiser on Aug 17.

Though it is unusual for a sitting President to make comments on monetary policy, Trump had made similar critical remarks in July. Powell had upheld the independence of the central bank at that point and experts predict he will do so going forward.

This is why the Fed is likely to continue with its policy of rate hikes well into 2019. An increase in rates widens the yield spread for banks, which in turn boosts their margins. Adding banking stocks to your portfolios looks like a smart option at this point.

Trump Criticizes Rate Hikes, Asks for Support on Economy

In an interview with Reuters on Monday, President Trump said he was “not thrilled” with Powell’s “raising of interest rates.” Trump added that that he should “be given some help by the Fed” at a time when he was “negotiating very powerfully and strongly with other nations.”

The President thinks that higher rates push up the dollar, which is bad for exports. Trump had also criticized the Fed on the campaign trail, saying that central banks of other countries supported them during difficult trade negotiations. However, the Fed had failed to do likewise, he alleged.

Trump made similar comments at a Hampton fundraiser over the weekend. According to Bloomberg, Trump said he expected Powell to be a cheap-money Fed chairman. Instead, he complained to the Republican donors present, the Fed Chair had gone on to implement a series of rate hikes.

Powell Likely to Stay the Course on Rate Hikes

In July, Trump said in an interview to CNBC that he was “not thrilled” with rate hikes. Trump felt that a hawkish monetary stance could undo his administration’s economic policies even though he had “put a very good man in” at the Fed. This, of course, was a reference to Jerome Powell, who he had nominated as the Fed Chair.

When asked to respond to Trump’s comments, Powell had said that he was “not concerned about it.” Speaking to National Public Radio, the Fed Chair added that the Fed has a tradition “of conducting policy in a particular way, and that way is independent of all political concerns.”

Several market watchers think that Powell could act in a manner, which indicates that the Fed is not being swayed by Trump’s criticism. The central bank is widely expected to announce a rate hike in November. Powell could use the opportunity to indicate that a rate hike was likely in December as well, just to emphasize the point.

Our Choices

Since President Trump assumed office in January 2017, the Fed has hiked rates on five occasions. Two of these have come under the stewardship of Jerome Powell. Despite Trump’s recent criticism of these hikes, the Fed is likely to undertake two further rate increases this year and three more in 2019.

Adding banking stocks to your portfolio looks like a profitable option at this time. This is because these are likely to benefit from the widening of the yield spread. We have narrowed our search to the following stocks based on a good Zacks Rank and other relevant metrics.

SunTrust Banks STI is a diversified financial services holding company. It operates through its principal banking subsidiary SunTrust Bank, which provides various financial services to individuals and corporate customers in the United States.

SunTrust Banks has a Zacks Rank #1 (Strong Buy). The company has expected earnings growth of 38.9% for the current year. The Zacks Consensus Estimate for the current year has improved by 1% over the last 30 days.

Comerica CMA is a banking and financial services company.

Comerica’s expected earnings growth for the current year is 50.8%. The Zacks Consensus Estimate for the current year has improved by 3.9% over the last 30 days. The stock has a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

KeyCorp KEY provides a wide range of products and services, such as commercial and retail banking, commercial leasing, consumer finance as well as investment banking products to individual and institutional clients throughout the United States.

KeyCorp has a Zacks Rank #2 (Buy). The company’s expected earnings growth for the current year is 36.4%.  The Zacks Consensus Estimate for the current year has improved by 2.4% over the last 30 days.

M&T Bank Corporation MTB is the holding company for M&T Bank and Wilmington Trust, National Association.

M&T Bank has a Zacks Rank #2. The company has expected earnings growth of 37.3% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.2% over the last 30 days.

Northern Trust Corporation NTRS is the holding company for its main subsidiary, Northern Trust Company, as well as a number of other banking and non-banking financial service subsidiaries.

Northern Trust has a Zacks Rank #2. The company has expected earnings growth of 38.8% for the current year. The Zacks Consensus Estimate for the current year has improved by 2.9% over the last 30 days.

The Hottest Tech Mega-Trend of All                

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Comerica Incorporated (CMA) : Free Stock Analysis Report
 
M&T Bank Corporation (MTB) : Free Stock Analysis Report
 
SunTrust Banks, Inc. (STI) : Free Stock Analysis Report
 
KeyCorp (KEY) : Free Stock Analysis Report
 
Northern Trust Corporation (NTRS) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research