Charting the Fed rate-hike path its and impact on the stock market

While the Fed has been steadfast in its objective of curtailing inflation, focus has now shifted to maintaining a balance between bringing down inflation and avoiding financial instability

The US Federal Reserve (Fed) began cutting rates in March 2020 in the wake of the Covid-19 pandemic. On March 16, 2020, it delivered a 100 basis points (bps) rate cut to stave off an economic crisis triggered by the shutdowns caused by the Covid-19 outbreak. Between March 2020 and March 2022, the US central bank kept policy rates near-zero. But spiralling inflation caused the Fed to pivot to a hawkish stance. Since March 2022, the Fed has hiked interest rates by 450 bps to 4.75 per cent--the highest since 2007. The quantum of the four out of previous seven rate hikes has been an aggressive 75 bps. The aggressive rate hikes have also weighed on the equity markets. The S&P500 of the US is back to levels seen before the Fed began its rate-hiking spree on March 16, 2022. The Sensex is barely 2.5 per cent above its March 16 close. While the Fed has remained steadfast in its objective of curtailing inflation, the focus has now shifted to maintaining a balance between bringing down inflation and avoiding financial instability.