Inflation’s on fire, and the Fed’s poised to act. Here’s how markets and the economy have reacted to the first hike in a cycle.
After Thursday’s shocking inflation reading showing year-over-year consumer price growth of 7.5%, an interest-rate hike could come quite literally at any time, though the most likely timing would be the two-day scheduled Federal Open Market Committee meeting ending March 16.
There’s already been quite a bit of analysis on how assets perform during Fed rate-hike cycles. But what about, specifically, the first increase?
Chung Wang, senior analyst at Leuthold Group, points out the first hikes have usually occurred before the peak of inflation. This time around, arguably, Jerome Powell & Co. may be starting the cycle at, or possibly even past, the peak in inflation. The unemployment rate also shows a trajectory much steeper than the historical pattern.
As for the stock market, Wang notes that the first hike doesn’t usually kill a bull market — however it often marks a top in the performance of U.S. stocks relative to the rest of the world. That’s been the case this year — the S&P 500 SPX,
Small caps RUT,
The U.S. dollar DXY,
The Dow Jones Industrial Average DJIA,