What Do Higher Interest Rates Mean for Stocks?
The Federal Reserve has engaged in a significant campaign to try to rein in inflation . The Fed has made one 25-basis-point hike , one 50-basis-point hike and two 75-basis-point hikes already. The latter hike, in May, was the largest hike since 1994 . Analysts now expect we may end the year near 3%. Fed Chairman Jerome Powell has made it clear that the current inflation rate is unacceptable, and that the Central Bank will continue taking aggressive measures to stamp it out. This accelerated rate-hiking campaign has been a major contributor to the stock market’s uneven performance over the past six months. Let’s zoom out though: What do higher interest rates mean for stocks and what can investors do to prepare themselves? First, The Bad News Overall, the effect of rising interest rates is a negative one for the stock market. It’s an old adage that traders shouldn’t fight the Fed, after all. When the Fed is raising interest rates, it is in effect reducing the amount of liquidity in the financial system.
What Do Higher Interest Rates Mean for Stocks?
The Federal Reserve has engaged in a significant campaign to try to rein in inflation . The Fed has made one 25-basis-point hike , one 50-basis-point hike and two 75-basis-point hikes already. The latter hike, in May, was the largest hike since 1994 . Analysts now expect we may end the year near 3%. Fed Chairman Jerome Powell has made it clear that the current inflation rate is unacceptable, and that the Central Bank will continue taking aggressive measures to stamp it out. This accelerated rate-hiking campaign has been a major contributor to the stock market’s uneven performance over the past six months. Let’s zoom out though: What do higher interest rates mean for stocks and what can investors do to prepare themselves? First, The Bad News Overall, the effect of rising interest rates is a negative one for the stock market. It’s an old adage that traders shouldn’t fight the Fed, after all. When the Fed is raising interest rates, it is in effect reducing the amount of liquidity in the financial system.