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Street betting big on banks before Fed liftoff

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Edward Slater | Getty Images

Investors are betting on a December "liftoff."

The SPDR S&P Bank ETF is up about 3 percent month to date and up more than 7 percent since the end of September on hopes the Federal Reserve will finally raise rates for the first time since 2006 when it ends a two-day meeting on Dec. 16.

Financials should benefit in rising-rate environments as the difference between short-term and long-term rates — the so-called yield curve — steepens. Banks can then charge higher interest rates on long-term loans and borrow in the short term at low rates, generating more profit on the difference.

Fed speakers hinted strongly at a rate hike this week.

"I think there's a very strong case for starting the process of raising interest rates," San Francisco Federal Reserve President John Williams said Tuesday.

And St. Louis Fed President James Bullard said said Thursday that zero interest rate policy has put the U.S. economy at "considerable risk of future inflation."

Wall Street is getting the message and putting money to work anticipating the move...

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