Now we will discuss another related scenario - when the Fed raises rates, inflation is also going up.
In this scenario, banks will generally perform well because despite their short term borrowing cost rises, their long term lending rates going up as well. But not all banks are created equal, there are a lot of banks' profits rely heavily on fixed income trading and installment debts which are vulnerable to rising rates, you can pick more conservative and well positioned big banks, such as Wells Fargo (WFC).
What if the Fed raises rates and slows down the economy? We will discuss this in our next blog post.