After ten, at times sharp, interest rate hikes within the past 15 months, US inflation seems to be tamed – albeit at a high level. In addition, the credit squeeze may make additional monetary tightening obsolete. We therefore anticipate a last interest rate hike of 5.5 percent in July. Interest rates will then only be eased again in spring 2024, as the US economy should slide into recession.
In order to obtain indications of how equities and bonds have reacted in the months following a final interest rate hike, we have prepared a historic analysis with data going back to 1973.
Sharp interest rate hikes are often followed by recessions and rate cuts
Our focus is on the US market, as it best represents global equities (67 percent share in the MSCI World). In median terms, it only took three months until the first rate cut and twelve months until recession, if one occurred (see table below).
Final interest rate hike | Months until the first rate cut | Months until recession | Inflation in % (core inflation in %) |
P/E trail |
---|---|---|---|---|
1974 |
2 |
Already in recession |
10 (6) |
12 |
Mar. 1980 |
1 |
Already in recession |
14 (12) |
8 |
Dec. 1980 |
1 |
7 |
13 (12) |
9 |
1981 |
1 |
2 |
10 (10) |
9 |
1984 |
1 |
No recession |
4 (5) |
11 |
1989 |
3 |
16 |
5 (5) |
13 |
1995 |
5 |
No recession |
3 (3) |
20 |
2000 |
8 |
10 |
3 (2) |
27 |
2006 |
15 |
17 |
4 (3) |
16 |
2018 |
7 |
14 |
2 (2) |
16 |
Median |
3 |
12 |
5 (5) |
12 |
July 2023 |
6 |
6 |
4 (5) |
19.4 |