From the monthly archives:

June 2015

Unless you’ve been away from the financial industry for some time, you’re likely aware that the Federal Reserve continues to give indications that it will hike the federal funds target rate fairly soon. If you believe recent statements from Fed Chairwoman Janet Yellen, the Fed may even raise rates later this year.

A pending Fed rate hike poses the question: what will a Fed rate hike mean for investment banking employment?

Looking at the Empirical Connection

One way to speculate on how a Fed rate hike might affect investment banking employment is to look at what the historical connection between the two has been. The following graphic is just such a look.

On the vertical axis is the percentage change in investment banking employment for each of the past 4 Federal Reserve tightening cycles (starting in 1990). On the horizontal axis is the number of days the tightening cycle lasted.  Interestingly, rate movements by the Fed have become more stable over the past couple of decades, with “high” rate hikes having virtually disappeared.

Each colored line represents the respective Federal Reserve rate hike cycle. The label for each line is the month and year in which the Fed started raising rates

.Investment Banking Job Growth During Federal Reserve Tightening Cycles (Past 4)

Discussion of the Empirics

Interestingly, employment in the investment banking industry may not be as sensitive to Federal Reserve rate changes as some might think. The gray-scaled vertical and horizontal bars are the inter-quartile range for either the growth in jobs or the length of time the rate hiking cycle lasted.

The median investment banking job growth during a rate hiking cycle is 3.3%, with a range from 1.1% and 5.3%. The median length of time for a Fed rate hiking cycle is 229 days, ranging from a low of 89 to a high of 432.

What does the investment banking job growth picture during Fed rate hiking cycles mean?

Essentially, although there’s reasonable concern that a Fed rate hike may hurt to U.S. economy, past experience would indicate that investment banks continue to hire during rate hiking cycles. Every investment banker is well aware that the Fed may, for the first time in eight years, actually raise the federal funds target rate.

Federal Funds Target Rate

Such a raise may put downward pressure on investment banking business, although, in looking at the connection between Fed rate hiking cycles and employment in the investment banking industry, a Fed rate hike probably won’t hurt hiring in the industry.

That is, if past experience is any indication of what might happen this time around.

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