U.S. stock market could collapse 20% after Fed rate hike

22-06-2021

St. Louis Fed Chairman James Bullard on June 18, 2021, announced the Federal Reserve plans to raise the interest rate by the end of next year. This is due to the faster growth of inflation than previously predicted. After the regulator’s meeting in June, it was expected up to two rate hikes in 2023. 

The possible reaction of the stock market to a rate hike

Mark Zandi, an economist at Moody’s Analytics, predicts a loss of about 10-20% of stock prices in the U.S. stock market. On June 22, 2021, the S&P 500 Index was trading above 4,200 points. Quotes on the U.S. stock market went up last spring and now may begin to decline after the announcement of the Federal Reserve’s plans to tighten regulatory policy. 

At the same time, experts do not see the preconditions for the fall of shares by more than 30%. Zandi also believes that after the collapse the stock market will not recover immediately. He predicts that indicators may return to current levels within a year. 

The Federal Reserve is going to continue buying assets, totaling $120 billion. In addition, the prime rate will fluctuate between 0-0.25%. This pattern will continue until the inflation target of 2% is reached.

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