The Commonwealth Bank of Australia (ASX: CBA) share price is down more than 2.5%. It's actually the worst performer out of the big four S&P/ASX 200 Index (ASX: XJO) banks.
Looking at the performance of the others in the major banking sector, the National Australia Bank Ltd. (ASX: NAB) share price is down 1.4%, the Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price is down 1% and the Westpac Banking Corp (ASX: WBC) share price is down 1.4%.
The ASX 200 is also down, showing a decline of 1.6%. Therefore, CBA has fallen more than the ASX 200 as well.
What's going on with the CBA share price?
The bank hasn't released a profitability update for a couple of months. It was the FY22 half-year result that investors last saw, which was during reporting season in February 2022.
The last operational market sensitive announcement from the ASX's biggest bank was the announcement of the sale of its 10% shareholding in the Bank of Hangzhou. Total gross proceeds expected to be received are approximately $1.8 billion.
However, one thing that may be catching investor attention today for the CBA share price was what the US Federal Reserve Chair Jerome Powell said overnight regarding inflation and interest rates.
According to CNBC reporting, Mr Powell said:
It is appropriate in my view to be moving a little more quickly. I also think there is something to be said for front-end loading any accommodation one thinks is appropriate…I would say 50 basis points will be on the table for the May meeting.
It's absolutely essential to restore price stability. Economies don't work without price stability.
It may be that the actual [inflation] peak was in March, but we don't know that, so we're not going to count on it.
We're really going to be raising rates and getting expeditiously to levels that are more neutral and then that are actually tight…if that turns out to be appropriate once we get there.
While CBA may be able to raise the interest rate for borrowers, the funding for its loans comes with a cost as well. CBA said in its HY22 presentation that it expects higher wholesale funding costs in the medium-term to be a negative for its overall net interest margin (NIM). Investors may be keeping this in mind when thinking about the CBA share price.
Interest rate impact on asset prices
A rising interest rate can also have an impact on asset prices. How? Famous investor Warren Buffett once said at a Berkshire Hathaway meeting:
The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be. So every business by its nature…its intrinsic valuation is 100% sensitive to interest rates.
