First-Year Dow Performance (After Target Fed Funds Trough)

How does the stock market perform after the Fed begins to raise rates?

Today’s chart answers that question by presenting the performance of the Dow following a major fed funds target rate trough (since 1983).

As today’s chart illustrates, the Dow’s performance following a major fed funds trough has been mixed — ranging from -7% to nearly 12%.

It is worth noting that the average one-year gain has been -1%.

Less than ideal.

First-Year Dow Performance (After Target Fed Funds Trough)

What was the highest fed funds rate?

The fed funds rate reached its record high of 20% in 1980 in an effort to counter double-digit inflation.

What was the lowest fed funds rate?

The fed funds rate dropped to 0.0% to 0.25% back in 2008 as a result of the 2008 financial crisis and hovered near the zero bound for the following seven years. The fed funds rate also dropped to 0.0% to 0.25% following the pandemic induced economic shutdown in 2020.