Federal Reserve Raises Interest Rates for First Time Since 2023

The Federal Reserve has raised interest rates for the first time since 2023, marking the start of a new rate-hiking cycle.

This decision was made in response to high inflation rates and is intended to curb inflationary pressures.

However, higher interest rates can have negative effects on stock prices, including pushing investors towards safer assets, discounting future earnings, and affecting businesses' finances if they need to borrow capital.

A review of the past 18 rate-hiking cycles by the Federal Reserve since World War II shows that the majority of them resulted in a significant drawdown in the S&P 500 index into correction territory within 12 months, with an average drawdown of 14% after the first rate hike.

The market is expected to experience volatility as investors digest the effects of higher interest rates on corporate earnings and spending, as well as inflation. The Fed's dot-plot projections suggest one more rate hike before the end of the year and a gradual lowering in interest rates through 2029.