Here’s How Markets Reacted Last Time The Fed Hiked Rates By 75 Basis Points

The stock market carnage this year continues to get worse, with the S&P 500 recently falling into a bear market. As the Federal Reserve tightens monetary policy, investors are worried that it will cause the economy to go into a recession.

The Federal Reserve is expected to raise interest rates by 50 basis points at its policy meeting on Wednesday.

Some experts are now calling for a 75 basis point rate increase after consumer prices hit 41-year highs. Several major firms have changed their forecasts of a 50-basis-point increase to a 75-basis-point hike in the last few days.

The last time the Federal Reserve raised rates was in November 1994 when the central bank was able to smooth out a rise in inflation. Between early 1994 and early 1995 the Fed Chair, Alan Greenspan, raised rates seven times in an attempt to keep the economy from overheating.

The Fed was able to avoid a recession and the stock market rebounded in 1995. The data from CFRA Research shows that after the rate hike in November 1994, the stock market rebounded before another rate increase in February 1995.

Is it possible for the Fed to achieve a soft landing in 2022. James Stack, president of InvesTech Research and Stack Financial Management, says that the stock market is down 22% this year and that the Fed is trying to catch up.

The biggest difference between 1994-95 and today is how far behind the Federal Reserve is. He says that when the Fed should have started raising interest rates early last year with signs of inflation, they instead kept stimulating the economy.

Sam Stovall, chief investment strategist for CFRA Research, says that back in 1994, the Fed was raising interest rates to levels that were much higher than the consumer prices. The Fed has to act more aggressively because inflation is rising at a faster rate than interest rates.

Charles Lemonides, founder and chief investment officer at ValueWorks, said that the economy remains solid despite the negative factors weighing on markets. Conditions are so good that the Fed has to make them worse by cooling off the economy, so that may be a position of strength like in 1994.

The stock market will react if the Fed increases rates more than expected. The best-case scenario would be for stocks to trade sideways and then rally after the Fed announcement. Even if the Fed increases by 50 basis points or 75 basis points, one can still make a case for stocks to rally or sell off.

Stovall thinks markets will be disappointed if the Fed doesn't increase rates by 75 basis points, as it wouldn't be enough to reassure investors. It would show that the central bank is wedded to procedure rather than responding to the data if they only raise rates by half a percentage point.

The economy seems to be on stable footing, but the problem is that the confidence underneath that footing is crumbling. He points to a number of troubling signs, including CEO confidence, small business outlooks and consumer sentiment. He says that the Fed blew it and that there is little doubt that the economy is headed for a hard landing.