There Is Now An 83% to 90% Chance the Fed Raises Interest Rates on Sept. 16. Here's What History Says Would Happen to the S&P 500 Index Next.

Hotter-than-expected inflation data has sharply increased market expectations for a Federal Reserve interest rate hike at the conclusion of the upcoming September 16 FOMC meeting. Market pricing metrics reflect strong consensus, with CME Group's FedWatch tool showing an over 90% probability of a 25-basis-point rate increase, while prediction market Kalshi indicates an 83% likelihood that the federal funds rate will exceed 3.75%. Historical data indicates that monetary tightening cycles generally present headwinds for equities due to higher borrowing costs and elevated Treasury yields that lower discounted cash flow valuations. A Goldman Sachs study of seven hiking cycles over the past two decades revealed that the S&P 500 averaged a 2% decline over the three months following rate increases. Additionally, Charles Schwab data between 1946 and 2022 shows the benchmark averaged a 12.2% six-month drawdown and a 14% one-year decline. Although near-term volatility and sell-offs are common during policy tightening, market analysts emphasize that the severity of market declines depends heavily on corporate earnings growth and the speed of rate hikes.