As was expected on Wall Street, the Federal Reserve is not raising rates.
The short-term impact for bankers and on Main Street is expected to be huge.
Dealmakers think summer vacations could get short as Wall Street continues its record M&A pace. Bankers have spent recent months advising clients that the Federal Reserve would not hike up interest and now they’re ready to act on it.
Outside Wall Street, many think homes sales could shoot up and that auto sales could continue rising.
Business Insider spoke with bankers and economists at many of Wall Street’s top banks, and this is what they had to say.
- Deals, deals, deals. Already, M&A has been on record pace in 2015. Goldman Sachs tops many M&A league table categories, so a prolonged discounted rate could be the best news for its M&A team. Bankers say they have been expecting rates to stay low through summer, and that confirmation from the Federal Reserve will help M&A in the coming months.
- Expect IPOs. “There’s as much clarity as most of these companies are going to get,” one banker said.
- Auto sales could continue spiking upward. A top Wall Street economist says that most “don’t have as much visibility in what’s going on inside the captive finance companies,” but that “after getting a little silly late last year auto lending standards from banks have returned to sanity.” However, zero rates mean it’s dirt-cheap for automakers to write their own loans. May sales stunned analysts. For now, companies like General Motors and Ford can lend to almost anyone.
- William Lee, managing director and head of North American economics at Citigroup, notes that automakers are eager to finance loans to as many qualified borrowers as possible and that prolonged discounted money could help sales. “They want these loans to perform well,” he added.
- Homes sales could start tracking up. The economist said “homebuyers will try to lock in mortgage rates while they are low.” Already, housing permits are shooting up and the prospect of cheap money and rising home prices could help fuel sales.
- From corporations, dividends could increase. “Corporations, hedge funds, and other wholesale depositors are holding a lot of cash at the banks,” which banks don’t exactly want or need. “It’s hard for the banks to kick that money out,” he notes, but “when the funds rate goes up banks can leave wholesale deposit rates at zero as a way to softly push that money out.” One option for corporations will be to start processing more dividends.
- This could be ‘the year’ for Wall Street’s dealmakers. “There’s probably as many people that think rates will stay low until early 2016, as do think they will raise in September,” one banking source said before the June decision was announced.