Inflation has sat above the Federal Reserve’s 2% target for more than five years. The central bank has now raised its benchmark rate to speed the return to that goal, which it calls a “timelier return.” Analysts at Schwab say the new round of hikes probably will not look like the one that started in 2022.
Their reasoning is about where the price pressure comes from. In 2022 demand ran ahead of what the economy could produce. This time, Schwab says, much of the pressure is on the supply side, especially in energy. Higher rates cannot pump more oil, fix disrupted supply chains, build semiconductors or generate electricity. What they can do is keep the oil shock and AI-related investment from feeding into wages, services prices and inflation expectations.
The AI boom complicates the picture. Spending on data centers, computing equipment, software and research is adding to growth and offsetting some of the drag from higher rates. Demand for chips, electricity and power infrastructure is pushing up costs in some producer-price categories, though Schwab sees few signs of broader price increases or a shift in long-term inflation expectations.
Its base case is two more rate increases, then a pause. A longer cycle would follow if growth stays strong while inflation stays firm, or if a new supply shock spreads through prices. Softer growth or steady disinflation would mean fewer hikes.
Housing first in line
Schwab calls housing a clear pressure point. Higher mortgage rates could squeeze affordability and weigh on home sales and construction. The Fed does not set mortgage rates directly, but credible inflation policy can ease pressure on long-term Treasury yields. Residential investment has already shrunk in seven of the past 10 quarters, based on Bureau of Economic Analysis data through the second quarter of 2026.
Consumers may feel it too. Higher borrowing costs and prices could cut into discretionary purchases, with spending leaning more heavily on higher-income households. Schwab points to delinquencies, lending standards and small-business confidence as the places to look for signs the strain is spreading.
What past cycles show
Schwab looked at the last seven hiking cycles, going back to 1983. They lasted 22 months on average. The Fed lifted its target rate by 3.3 percentage points in a typical cycle, and the 10-year Treasury yield rose 1.4 points.
Stocks did better than many people expect. The S&P 500 returned an average of 7.5% a year during those stretches, a little under its long-run average, while bonds averaged 1.8%. Developed-market stocks outside the US and commodities did better than US equities. Bonds tended to lag once inflation is taken out.
Not every company fares the same. Energy, industrials, materials, some health care and selective technology firms may hold up if growth stays positive. Capital-intensive businesses, high-valuation stocks, highly indebted companies and consumer firms facing tighter credit and rising costs are more exposed.
