Powell Has Reversed Course On Interest Rates Before: Will History Repeat Itself?

The Federal Reserve hike the federal funds rate once again last week, taking it to a range of 3% to 3.25%.

All signs point to further hikes later this year and well into 2023, to a peak range of 4.5%-4.75%, as several Fed governors said earlier this month.

Yet looking back at recent history, a Powell-run Fed hasn’t always shown a steady hand in raising interest rates.

Related: Why You Should Care About The Latest Interest Rate Hike: From Mortgages To Personal Loans, Credit Cards And The Job Market

As Ryan Detrick, chief market strategist at the Carson Group, points out, the last time the Fed raised interest rates and the S&P 500 was down for several days in a row was December 2018.

Dec. 19, 2018 marked the last Fed hike before the series of upticks that started in March of this year. At that point, interest rates peaked at a range of 2.25% to 2.5% and had been growing consistently from zero to 0.25% in 2015.

The S&P 500 was down 11% in one less than one month, from late November to mid-December.

After that event, the Fed began bringing rates back down in July 2019 in order to give the economy a new boost.

While the pre-pandemic scenario was certainly different from today’s, it’s valuable to see the reactions of a Fed with Jerome Powell already at its helm against the market consequences of rising interest rates.

Both the S&P 500 and the Dow Jones recovered 1.7% and 1.8%, respectively, on Wednesday after six days of losses following the Fed’s latest announcement on interest rates.

If recent history were to repeat itself, the Fed might not be as confident in raising the funds rate to 4.75% were the hikes to continue causing such market turmoil.

Image by Federal Reserve on Wikimedia Commons.