If economists are correct about the Federal Reserve rapidly raising interest rates,  banks will be faced with several steep challenges.

CNN/Paul R. La Monica
Bad news for banks: Rates are rising fast

The Federal Reserve’s interest rate hikes should boost lending profits for major financial firms. Now, the big banks will have the chance to prove to investors that they can thrive if rates continue to climb.

JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C), Goldman Sachs (GS) and Morgan Stanley (MS) will all report first-quarter earnings this week.

Asset management giants BlackRock (BLK) and State Street (STT), regional banking powerhouses US Bancorp (USB) and PNC (PNC), and online lender Ally Financial (ALLY) are also on tap to release their latest results.

Investors are hoping financial stocks will benefit from rising interest rates. But it’s a complicated calculus. If the Fed is serious about aggressively tightening monetary policy, that could backfire on the big banks.

The Fed is no longer expected to raise rates gradually. The consensus opinion among economists is that a series of quarter-point hikes will no longer cut it.

The Fed is behind the curve on inflation. It’s time for shock and awe.

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Bloomberg via Yahoo Finance
Russia’s First Default in a Century Looks All But Inevitable Now

Russia’s first external default in a century now looks all but inevitable after another brutal week for the country’s finances.

First, the Treasury halted dollar debt payments from Russia’s accounts in U.S. banks, ramping up its restrictions on the country. Then, when an attempted hard-currency payment was blocked, Russia breached the terms on two bonds by paying investors rubles instead of dollars.

That pushed the countdown clock a step closer to default. It’s been ticking since Russia invaded Ukraine in February, and the U.S. and others swiped back with a clampdown on banks, companies and oligarchs. A freeze on the central bank’s foreign reserves unplugged Russia from the global financial system, making it the world’s most-sanctioned nation in a matter of days.

With Vladimir Putin’s government hampered by asset blocks and branded a pariah by Western countries — politically, economically and financially — speculation has mounted that Russia would only be able to avoid a default for so long. The country’s bonds are already trading deep in distressed territory, and insurance on the debt now suggests almost a 90% chance that a default will happen this year, according to the latest figures from ICE Data Services.

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CNBC/Eric Rosenbaum
As inflation bites and America’s mood darkens, higher-income consumers are cutting back, too

With as much as 60% of U.S. consumers living paycheck to paycheck, it’s not a surprise to see that the spending cutbacks have started. Even with a strong job market and wage gains, as well as Covid stimulus savings, pricing spikes in core spending categories including food, gas and shelter are leading more Americans to mind their pocketbooks closely.

A new survey from CNBC and Momentive finds rising concerns about inflation and the risk of recession, and Americans saying not only have started buying less but will be buying less across more categories if inflation persists. But these financial stress points are not limited to lower-income consumers. The survey finds Americans with incomes of at least $100,000 saying they’ve cut back on spending, or may soon do so, in numbers that are not far off the decisions being made by lower-income groups.

The high-income consumer demographic is key to the economy. While it represents only one-third of consumers, it is responsible for up to three-quarters of the spending. As Mark Zandi, chief economist at Moody’s notes, “If the high-income consumers are out buying, we won’t see a big impact on raw consumer activity.”

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