The final quarter of 2023 saw the five major banks report staggering net interest income (NII) of $65.7 billion – marking a 0.98% increase from Q3 and a robust 4.9% surge from Q4 2022. This impressive achievement unfolded against the backdrop of the highest interest rates witnessed in almost 23 years.

While the Federal Reserve has yet to solidify its stance on a potential rate hike in response to inflation flaring up, market sentiment points to the likelihood that the federal funds rate target range has reached its apex for this cycle, hovering between 5.25% and 5.50%.

The murmurs on Wall Street are growing louder, with many anticipating that the Fed will initiate a series of rate cuts as early as March. According to the CME FedWatch tool, the likelihood of a 25 basis point rate cut stands at 74.2% on a Friday afternoon – a sharp increase from 70.2% merely a day prior.

Projections from the banking behemoths themselves echo the prevailing sentiment. Wells Fargo (NYSE:WFC) anticipates an unsettling 7%-9% decline in NII this year. At Citigroup (NYSE:C), NII is expected to experience a modest descent.

Despite JPMorgan (NYSE:JPM) forecasting 2024 NII to hover around $90 billion, a relatively flat outlook compared to 2023, the bank’s spell-casters are anticipating a throbbing series of quarterly declines throughout 2024, stemming from the Q4 peak. With a seemingly prescient wizardry, the bank has factored in a sequence of six rate cuts spanning the year.

Worryingly, two of the financial institutions that unveiled their Q4 performances on Friday, namely Bank of America (NYSE:BAC) and Wells Fargo (WFC), are already bearing the brunt of a declining NII, as illustrated in the table below.

Source: Company statements.