Schwab research analyzes market reaction to Federal Reserve rate hikes
What happened
The Federal Reserve's monetary policy committee voted unanimously last month to raise the federal funds rate by a quarter percentage point. The two-year Treasury note yield rose to 4.82%, suggesting the bond market expects three to four more rate increases over the next 12 months. Schwab research found that the S&P 500 index experienced maximum drawdowns of 12% within six months of the first rate hike, and 14% within the first year.
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Why it matters
The Federal Reserve appears to be embarking on a full rate-hiking cycle, as indicated by policy committee projections and futures trading. The impact on the stock market depends heavily on the speed of the hiking cycle; aggressive and quick hikes tend to cause worse market damage.
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Who's involved
- FEDConducts monetary policy and sets interest rates
- Federal Open Market CommitteeThe decision-making body responsible for executing monetary policy for the Federal Reserve
- Jerome PowellServes as the formal Chair and leader of the Federal Reserve
Who could feel it
Possible knock-on effectsThese are possibilities Brind reasoned out, not predictions, and not advice. Most are not stated in any report.
- Fidelity InvestmentsSpeculative
Could see changes in AUM revenue and competitive position due to macroeconomic shifts from rate hikes
Possible ripples
Who this could reach next, traced step by step from the reporting. Possibilities worth considering, not forecasts.- Federal Reserve Bank must adjust operations amid rate hike cycleRegional Federal Reserve Banks must adjust operations following national rate hikes.Likely
- Fed rate hikes may shift Fidelity's AUM and investment strategyFidelity Investments may face shifts in AUM and competitive positioning due to Fed rate hikes.Possible
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The entities involved
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FED
business
Related events
- Schwab Center for Financial Research analyzes the Federal Reserve's reaction to the latest jobs report.
- John Williams is named President of the New York Federal Reserve, while Charles Schwab analyzed market reactions to Fed rate hikes.
- Charles Schwab studies the actions of the Federal Reserve using historical data.
- Earnings reports are influencing Fed rate hike expectations.
- Fed rate hike fears caused a market decline involving Nasdaq.