Stocks edge higher after bank earnings, rate hike fears ease

The brightening mood reflects a belief the central bank will not escalate an already-aggressive plan to raise interest rates to tamp down blazing hot inflation. After the Bureau of Labor Statistics released data last week showing inflation was 9.1 percent higher in June than it was a year ago, many market observers worried the Fed might choose to raise rates by a full percentage point, or 100 basis points, at its July 27-28 meeting instead of the widely anticipated 0.75 percentage point.

An increase of 100 basis points would be a major leap, because the Fed has not bumped up rates by that much since the early 1990s. It would also show a clear ramping up from earlier this year, fueling the Fed’s critics who have argued that officials acted too slowly to address surging price hikes, and are only now fighting inflation from behind.

Mixed messages on economy raise questions on recession risks

But the criticism and rate-hike trajectory reflect the Fed’s delicate balancing act. While the rate increases are designed to cool the economy, they could also tip it into a recession, by slowing economic activity too forcefully and with too much speed. As Fed officials have acknowledged, the need to bring stability to prices may come at the cost of sluggish growth and layoffs.

Central bankers have already raised rates three times this year: a quarter-point in March, a half-point in May and three-quarter of a point in June, catching some on Wall Street by surprise.

The latest monthly jobs report showed the U.S. labor market maintained its sizzling pace in June, keeping the unemployment rate at a low 3.6 percent. What’s more, corporate earnings and consumer spending have remained resilient, highlighting the conflicting signals that officials and analysts are parsing to get a sense of where the economy is headed.

Volatility could be elevated this week as Wall Street turns its attention to corporate earnings.

On Monday, Goldman Sachs reported better-than-expected quarterly results ahead of the opening bell. Though revenue fell 23 percent, to $11.86 billion, it was $1 billion more than analyst estimates thanks to a 55 percent surge in fixed income revenue, including government and corporate bonds. Profit slumped 48 percent to $2.79 billion as a result of an industry-wide decline in investment banking activities. Goldman shares climbed 3.6 percent

Bank of America, meanwhile, reported a 5.6 percent jump in revenue, to $22.79 billion vs. forecasts of $22.67 billion. The bank benefited from rising interest rates, pushing net interest income up 22 percent. But profit…