Fed Hikes Interest Rates Multiple Times: Will This Spark a Bear Market?

The Federal Reserve hiked its benchmark interest rate last week after months of foot-dragging. Fed Chair Kevin Warsh said the move was to better assess the underlying causes of persistently elevated inflation.

However, this may not be a one-and-done hike. The fed funds futures market is pricing in two to three more quarter-point hikes by the end of 2027, indicating a series of hikes.

This raises concerns for investors: Will this rate-hiking cycle trigger a bear market?

The research on this topic is mixed. Higher interest rates can increase borrowing costs for companies, squeeze profit margins and earnings, and make borrowing more expensive for consumers.

Most past tightening cycles have led to economic contractions, which are certainly bearish for the stock market. However, history also suggests that recessions triggered by rate tightening cycles typically don't begin until more than a year after the first Fed rate increase.