Fed Chair Kevin Warsh and the FOMC Just Hiked Interest Rates, and 36 Years of History Make Clear What Comes Next for Stocks

On September 16, Federal Reserve Chair Kevin Warsh and the Federal Open Market Committee (FOMC) raised the federal funds target rate by 25 basis points to a range of 3.75%-4.00%, the first increase since July 2023. The Dow Jones Industrial Average fell more than 1%, while the S&P 500 and Nasdaq Composite edged lower. Despite the rate hike's negative impact on the stock market, nearly 36 years of history suggests what to expect next for stocks.

Fed Chair Kevin Warsh's previous hawkish record and his promise of a "timelier return" to the central bank's 2% inflation target indicate a series of rate hikes may be on the horizon. The current market valuation is historically high, and any re-rating of growth rates could negatively impact the market. Although raising interest rates is typically unfavorable for equities, in this case, the building blocks for a strong economy – low unemployment, strong consumer spending, and significant investment in AI infrastructure – suggest stocks may rise over the next 12 months.