Warsh's Rate Hike Plan: Stocks May Wobble, Then Recover

The Federal Reserve under new Chair Kevin Warsh has shifted its focus to price stability in response to the recent three-year high of 4.2% inflation rate, driven primarily by tariffs and the Iran war.

A rate hike is increasingly likely at the September 15-16 meeting, with a 50-50 probability according to the CME Group's FedWatch Tool.

Historically, stocks have reacted poorly to initial interest rate hikes, with the S&P 500 losing value one month later in all six rate-hiking cycles since 1990.

The average decline after three months was 2.7%, and a 50-basis-point hike has been followed by double-digit percentage declines for the index.