In this article, you’ll learn how the S&P 500 performed after the first rate hike in eight major Fed tightening cycles dating back to 1983. Stocks averaged −1.0% after one month but +2.5% after 12 months, finished the first year higher in 75% of cycles, and experienced an average maximum drawdown of 14.1% along the way.
There has been plenty of talk lately about interest rate hikes, FOMC and Federal Reserve independence, and whether the U.S. president should have more control over monetary policy.
Unfortunately, none of it is simple. Interest-rate decisions are tangled up with inflation, employment, geopolitics, the cost of living, and even the overnight lending market between banks.
But for investors, there is one much more direct question:
Are interest rate hikes good or bad for the stock market?
To find out, I analyzed eight major Federal Reserve hiking cycles dating back to 1983 and calculated the S&P 500’s returns one, three, six, and 12 months after the first hike.
I found that stocks were negative after one month in five of the eight cycles. The same was true after three months.
However, the S&P 500 was positive one year later in six of the eight cycles, or 75% of the time. But that result requires some context, which we’ll explore in more detail below.
Ultimately, the historical data suggests that rate hikes have often created near-term trouble for stocks, but they have not automatically caused the market to fall over the following year.
As the numbers below demonstrate, the relationship between interest rates and stock prices is much more nuanced.
Quick Answer: What happens to stocks when the Fed raises rates?
Based on eight major Fed hiking cycles since 1983, stocks have tended to struggle initially before improving over longer periods. The S&P 500 was negative after one and three months in 5 of 8 cycles, producing average returns of -1.0% and -0.5%, respectively. By six months, it was positive in 62.5% of cycles, and after 12 months, it was positive 75% of the time. The average one-year return was 2.5%, while the median was 3.9%, suggesting that a first rate hike has historically created more short-term weakness than lasting stock-market declines.
| After First Hike | Average Return | Median Return | Positive Cycles |
|---|---|---|---|
| 1 Month | −1.0% | −0.8% | 3 of 8 (37.5%) |
| 3 Months | −0.5% | −1.2% | 3 of 8 (37.5%) |
| 6 Months | +0.2% | +3.4% | 5 of 8 (62.5%) |
| 12 Months | +2.5% | +3.9% | 6 of 8 (75.0%) |
Based on eight major Federal Reserve hiking cycles since 1983. Returns measure changes in the S&P 500 price index and exclude dividends.
Key Statistics – Past Interest Rate Hikes Vs. The Stock Market
Historical Data at a Glance
10 Interest Rate Hike Statistics
- Our study covers eight major Fed hiking cycles beginning between 1983 and 2022.
- The S&P 500 averaged −1.0% one month after the first hike.
- The average three-month return was −0.5%.
- The average six-month return improved to +0.2%.
- The average 12-month return was +2.5%, with a median of +3.9%.
- Stocks were positive after 12 months in six of eight cycles, or 75%.
- The average maximum first-year drawdown in our sample was −14.1%.
- Across 18 post-WWII cycles, average maximum drawdowns reached approximately −12% after six months and −14% after 12 months.
- Fast hiking cycles produced average 12-month drawdowns of approximately −16%, versus −12% for slower cycles.
- A recession followed four of six cycles studied since 1988, or three of five when the COVID recession is excluded.
Bottom line: Rate hikes have historically created short-term weakness and meaningful drawdowns, but they have not reliably predicted a negative 12-month stock-market return.
Sources: PTJ calculations, Charles Schwab and Ned Davis Research, and the NBER Business Cycle Dating Committee.
Historical Fed Interest Rate Hiking Cycles
The Federal Reserve has completed several major interest rate hiking cycles since the early 1980s. Across the eight cycles included in our stock-market study, rates increased by anywhere from approximately 131 to 525 basis points, with a median increase of 300 basis points.
| Hiking Cycle | First Hike | Final Hike | Starting Rate | Ending Rate | Total Increase |
|---|---|---|---|---|---|
| 1983–1984 | Mar. 31, 1983 | Aug. 9, 1984 | 8.50% | 11.50% | +300 bps |
| 1987 | Apr. 30, 1987 | Sep. 24, 1987 | 6.00% | 7.31% | +131 bps |
| 1988–1989 | Mar. 30, 1988 | Feb. 24, 1989 | 6.50% | 9.75% | +325 bps |
| 1994–1995 | Feb. 4, 1994 | Feb. 1, 1995 | 3.00% | 6.00% | +300 bps |
| 1999–2000 | Jun. 30, 1999 | May 16, 2000 | 4.75% | 6.50% | +175 bps |
| 2004–2006 | Jun. 30, 2004 | Jun. 29, 2006 | 1.00% | 5.25% | +425 bps |
| 2015–2018 | Dec. 17, 2015 | Dec. 20, 2018 | 0%–0.25% | 2.25%–2.50% | +225 bps |
| 2022–2023 | Mar. 17, 2022 | Jul. 27, 2023 | 0%–0.25% | 5.25%–5.50% | +525 bps |
One basis point equals 0.01 percentage points. Dates reflect the effective rate-change date used in our return calculations.
The 2022–2023 cycle was the largest in our sample, increasing the target range by 525 basis points in just over 16 months. However, the size and speed of the increase varied substantially between cycles, which helps explain why the stock market did not respond the same way every time.
What Happens to the S&P 500 After the First Rate Hike?
To measure how stocks performed after tightening began, I calculated the S&P 500’s price return one, three, six, and 12 months after the first hike in each cycle.
Returns exclude dividends, while maximum drawdown measures the largest peak-to-trough decline experienced during the following 12 months.
| First Fed Hike | 1 Month | 3 Months | 6 Months | 12 Months | Maximum Drawdown |
|---|---|---|---|---|---|
| 1983 | +5.98% | +9.60% | +8.57% | +3.28% | −10.63% |
| 1987 | +0.51% | +10.30% | −12.68% | −9.29% | −33.51% |
| 1988 | +1.35% | +5.98% | +5.36% | +13.35% | −7.64% |
| 1994 | −1.08% | −3.85% | −2.43% | +2.41% | −7.16% |
| 1999 | −3.20% | −6.56% | +6.68% | +5.97% | −12.08% |
| 2004 | −3.43% | −2.30% | +6.37% | +4.43% | −7.17% |
| 2015 | −7.86% | −0.06% | +1.44% | +10.81% | −11.99% |
| 2022 | −0.45% | −16.70% | −11.60% | −11.22% | −22.77% |
Average S&P 500 Return After a Rate Hike
Across the eight cycles, the S&P 500’s average return was −1.0% after one month, −0.5% after three months, +0.2% after six months, and +2.5% after 12 months.
Median returns were −0.8%, −1.2%, +3.4%, and +3.9%, respectively.
The gap between the six-month average and median shows how severe declines during 1987 and 2022 pulled down the overall results.
In most cycles, stocks performed better as more time passed after the first hike.
How Often Does the Stock Market Fall After Rate Hikes?
The S&P 500 was negative after one month in 62.5% of cycles and remained negative after three months in the same percentage.
That fell to 37.5% after six months and just 25% after 12 months.
However, positive ending returns did not mean investors avoided volatility.
Every cycle experienced a drawdown, with an average maximum decline of approximately 14.1% during the first year. The worst occurred in 1987 at −33.5%, followed by the 2022 cycle at −22.8%.
How Large Are Stock Market Drawdowns After Rate Hikes?
So, over the longer-run, interest rate changes becomes almost just noise to the stock market. But positive returns do not necessarily mean investors enjoyed a smooth ride.
Even when the S&P 500 ended a period higher, it often suffered a meaningful decline along the way.
Across 18 post-WWII tightening cycles, the average maximum drawdown reached approximately 12% within six months of the first hike and 14% within 12 months.
The speed of tightening mattered too, with faster hiking cycles generally producing larger declines.
What Happens After the Final Interest Rate Hike?
The final rate hike in a tightening cycle can feel like good news for investors because borrowing costs have stopped climbing.
Historically, however, the end of Fed rate hikes has not produced an immediate or consistent stock market rally.
Across 14 previous final hikes, the S&P 500 returned an average of −0.4% over the following six months and just +1.8% over 12 months.
Historical S&P 500 Performance
The Final Hike Is Not an Automatic Buy Signal
One-year returns after selected final hikes
Key takeaway: “The Fed stopped hiking” has not historically been a reliable bullish signal by itself.
Source: Charles Schwab, based on 14 historical final Fed rate hikes.
Individual outcomes varied dramatically, suggesting that inflation, economic growth and recession risk mattered far more than the final hike alone.
So, what’s the main takeaway from this?
“The Fed stopped hiking” historically hasn’t been a reliable bullish signal by itself.
How Often Do Rate Hikes Cause a Recession?
Another common misconception about interest rate increases is that they causes recessions.
Rate hikes absolutely can slow borrowing, spending and business investment, but it would be misleading to say that they automatically cause recessions. Of the six major hiking cycles examined since 1988, four were followed by an NBER-designated recession, while two were not.
That four-out-of-six figure also requires an important caveat.
The recession following the 2015–2018 cycle began when COVID-19 abruptly shut down large parts of the economy, making it a poor example of monetary tightening directly causing a downturn.
Excluding that unusual event, three of the five remaining cycles were followed by a recession, each beginning within approximately 10 to 18 months of the final hike.
Six Major Fed Hiking Cycles
How Often Did a Recession Follow?
| Hiking cycle | Recession followed? | Time from final hike |
|---|---|---|
| 1988–1989 | Yes | Approximately 14 months |
| 1994–1995 | No | No recession before next cycle |
| 1999–2000 | Yes | Approximately 10 months |
| 2004–2006 | Yes | Approximately 18 months |
| 2015–2018 | Yes, COVID | Approximately 14 months |
| 2022–2023 | No | None through September 2026 |
Key takeaway: Recessions have often followed Fed hiking cycles, but timing alone does not prove that rate increases caused the downturn.
Time until recession is measured from the final rate increase to the beginning of the next NBER-designated recession. Sources: NBER Business Cycle Dating Committee and Federal Reserve historical tightening-cycle analysis.
What Happens to Inflation After Interest Rate Hikes?
Higher interest rates are intended to cool demand, but inflation rarely responds immediately or consistently.
Across the six modern hiking cycles in our dataset, inflation was lower 12 months after the first hike in only two cycles and lower after 24 months in just one.
The clearest recent example was 2022, when headline inflation declined from 8.6% at the first hike to 4.9% one year later and 3.5% after two years.
The Volcker era was even more dramatic, although far more painful: aggressive tightening in 1980–1981 was followed by a recession, sharply higher unemployment and core inflation falling to approximately 5% by 1983.
Headline CPI After the First Hike
Inflation Usually Responds With a Lag
| Hiking cycle | At first hike | 12 months later | 24 months later |
|---|---|---|---|
| 1988–1989 | 3.8% | 4.9% ↑ | 5.2% ↑ |
| 1994–1995 | 2.5% | 2.9% ↑ | 2.7% ↑ |
| 1999–2000 | 2.0% | 3.7% ↑ | 3.2% ↑ |
| 2004–2006 | 3.2% | 2.5% ↓ | 4.2% ↑ |
| 2015–2018 | 0.6% | 2.1% ↑ | 2.1% ↑ |
| 2022–2023 | 8.6% | 4.9% ↓ | 3.5% ↓ |
Key takeaway: A rate hike does not immediately push inflation lower. The result depends on why inflation is rising, how aggressively the Fed tightens and how the broader economy responds.
Source: PTJ calculations using the U.S. Consumer Price Index from FRED. Figures show the year-over-year change in seasonally adjusted headline CPI during the first-hike month and 12 and 24 months later.
The 2022–2023 Rate Hiking Cycle
The 2022-2023 hiking cycle is probably the most important part of this article because it’s the period traders and investors remember the most.
The Fed raised its target range 11 times between March 2022 and July 2023, moving it from 0%–0.25% to 5.25%–5.50%.
Inflation initially continued rising, reaching 9.1% in June 2022, before gradually falling to 3.2% by the final hike.
The S&P 500 followed a much less orderly path. It was down 13.7% from the first-hike level by November 2022, but had fully recovered and was up 4.8% by July 2023.
March 2022 to July 2023
Rates, Inflation and the S&P 500
| Fed meeting | Rate increase | New target range | Inflation | S&P 500 return since first hike |
|---|---|---|---|---|
| Mar. 16, 2022 | +25 bps | 0.25%–0.50% | 8.5% | Starting point |
| May 4, 2022 | +50 bps | 0.75%–1.00% | 8.6% | −1.3% |
| Jun. 15, 2022 | +75 bps | 1.50%–1.75% | 9.1% | −13.0% |
| Jul. 27, 2022 | +75 bps | 2.25%–2.50% | 8.5% | −7.7% |
| Sep. 21, 2022 | +75 bps | 3.00%–3.25% | 8.2% | −13.0% |
| Nov. 2, 2022 | +75 bps | 3.75%–4.00% | 7.1% | −13.7% |
| Dec. 14, 2022 | +50 bps | 4.25%–4.50% | 6.5% | −8.3% |
| Feb. 1, 2023 | +25 bps | 4.50%–4.75% | 6.0% | −5.5% |
| Mar. 22, 2023 | +25 bps | 4.75%–5.00% | 5.0% | −9.7% |
| May 3, 2023 | +25 bps | 5.00%–5.25% | 4.0% | −6.1% |
| Jul. 26, 2023 | +25 bps | 5.25%–5.50% | 3.2% | +4.8% |
Key takeaway: Inflation fell substantially during the cycle, but the S&P 500 experienced a deep decline and a full recovery before the Fed finished hiking.
Inflation is the year-over-year change in headline CPI for each meeting month. S&P 500 figures are price returns measured from the March 16, 2022 close through each listed meeting date. Sources: Federal Reserve, U.S. CPI and S&P 500 data.
Conclusion – Does a Fed Interest Rate Hike Make Stocks Go Down?
No, a Fed interest rate hike does not automatically make stocks go down.
Our historical data shows that the S&P 500 frequently struggled during the first few months of a hiking cycle, but it was positive one year after the first hike in 75% of the cycles studied.
However, the average 12-month return was only 2.5%, and several cycles included substantial drawdowns along the way.
Ultimately, rate hikes appear to increase short-term pressure and volatility, but inflation, economic growth and recession risk ultimately have a much larger influence on where stocks finish.
The lesson from history is simple: when the Fed starts hiking, expect turbulence, not an automatic stock market crash.
If you want to go deeper:
- Explore the Trading Statistics Hub to understand how different sectors behave across market cycles
- Study real setups inside the Trade Reviews section
- Learn the framework behind high-probability setups in the Post-Earnings Momentum Strategy
This is how you turn raw market data into repeatable trading edge.
More Trading Statistics…
FAQ: Interest Rate Hikes vs. Stocks
Do stocks usually fall when the Fed raises interest rates?
Not necessarily. In our study of eight major hiking cycles, the S&P 500 was negative one month after the first hike in five cycles but was positive after 12 months in six cycles.
What is the average S&P 500 return after the first rate hike?
The S&P 500 produced average price returns of −1.0% after one month, −0.5% after three months, +0.2% after six months and +2.5% after 12 months. These figures exclude dividends.
How often is the stock market positive one year after a rate hike?
The S&P 500 was positive one year after the first hike in six of the eight cycles studied, or 75% of the time. The median 12-month return was +3.9%.
How large are stock market drawdowns after rate hikes?
Every cycle in our dataset experienced a decline during the following year, with an average maximum drawdown of approximately 14.1%. The largest was −33.5% following the first 1987 hike, while the 2022 cycle produced a −22.8% maximum drawdown.
Do faster interest rate hikes cause larger stock market declines?
Historically, faster tightening cycles have produced larger drawdowns. Research covering 18 post-WWII cycles found an average 12-month maximum drawdown of approximately 16% during fast cycles, compared with 12% during slower cycles.
Do stocks rise after the Fed’s final rate hike?
Not consistently. Across 14 historical final hikes, the S&P 500 averaged −0.4% over the following six months and +1.8% over 12 months, with individual outcomes ranging from large gains to double-digit losses.
Do interest rate hikes cause recessions?
Rate hikes can slow economic activity, but they do not automatically cause recessions. Four of the six cycles examined since 1988 were followed by a recession, although the 2020 recession was primarily caused by the COVID-19 pandemic.
What happened during the 2022–2023 hiking cycle?
The Fed raised its target range by 525 basis points over 16 months. Inflation declined from 8.5% during the first-hike month to 3.2% by the final hike, while the S&P 500 fell sharply before recovering to finish 4.8% above its first-hike level.
References
Ajello, A., Favara, G., Marchal, G., & Szoke, B. (2024, September 20). Financial conditions and risks to the economic outlook. Board of Governors of the Federal Reserve System. https://doi.org/10.17016/2380-7172.3599
Board of Governors of the Federal Reserve System. (n.d.). Meeting calendars, statements, and minutes (2021–2027). Retrieved September 17, 2026, from https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm
Charles Schwab. (n.d.). Final Fed rate hikes. Advisor Services. https://advisorservices.schwab.com/node/107066
de Soyres, F., & Saijid, Z. (2024, May 31). Lessons from past monetary easing cycles. Board of Governors of the Federal Reserve System. https://doi.org/10.17016/2380-7172.3504
National Bureau of Economic Research. (n.d.). Business cycle dating. Retrieved September 17, 2026, from https://www.nber.org/research/business-cycle-dating
S&P Dow Jones Indices LLC. (n.d.). S&P 500 [SP500] [Data set]. Federal Reserve Bank of St. Louis. Retrieved September 17, 2026, from https://fred.stlouisfed.org/series/SP500
Sonders, L. A., & Gordon, K. (2026, September 9). Take a hike: Rate hikes and market impacts. Charles Schwab. https://www.schwab.com/learn/story/take-hike-rate-hikes-and-market-impacts
U.S. Bureau of Labor Statistics. (n.d.-a). Consumer Price Index for All Urban Consumers: All Items in U.S. City Average [CPIAUCNS] [Data set]. Federal Reserve Bank of St. Louis. Retrieved September 17, 2026, from https://fred.stlouisfed.org/series/CPIAUCNS
U.S. Bureau of Labor Statistics. (n.d.-b). Consumer Price Index for All Urban Consumers: All Items in U.S. City Average [CPIAUCSL] [Data set]. Federal Reserve Bank of St. Louis. Retrieved September 17, 2026, from https://fred.stlouisfed.org/series/CPIAUCSL
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