Fed rates up by 75 bps: Is this the end of the market bull run?

The decision to hike by 75 bps, the first of its kind since 1994, is causing high volatility in the markets, and BofA's forecasts of no rate cuts until 2028 suggest a lasting cooling of investor sentiment. Yes, this is the end of the bull market, as aggressive monetary policy tightening combined with persistent inflation permanently limits the liquidity available in capital markets. Financial institutions, including Bank of America, clearly indicate that the era of cheap money has come to an end, forcing market participants to value assets under conditions of high debt-servicing costs for at least the next three years.

Historical scale: 75 basis points in the face of inflation

The Federal Open Market Committee (FOMC) has decided to raise interest rates by 75 basis points. This is the strongest and most radical move by the US central bank since 1994. At that time, the US economy was in a phase of intense recovery from a recession, and then-Fed Chair Alan Greenspan had to react sharply to growing fears of an overheating economy. Today's situation has similar points of contact, although the macroeconomic fundamentals are much more complex.

The impetus for such decisive action was hard data published on June 25, 2026. It clearly indicates that the US economy and inflation not only failed to slow down but actually accelerated in the second quarter. Jerome Powell, facing price pressure that began to exceed the bands forecast by analysts, had to decide on a step that is perceived in the financial environment as an attempt to "extinguish a fire" with high interest rates. Market participants, who were counting on a smooth transition through the rate-hike cycle before this decision, collided with a reality in which the central bank prioritizes fighting inflation at the expense of economic growth.

Analyzing the comparison with 1994, it should be noted that the bond market's reaction at the time was violent. Investors sold off debt securities, leading to significant losses in "fixed income" portfolios. Today, we are observing an analogous mechanism. The volatility on stock exchanges that we see after the FOMC announcement results from underestimating the determination of central bankers. For many months, the market lived under the conviction that inflation was a transitory phenomenon and that the Fed would quickly change course. The 75-basis-point decision finally erased these expectations from financial models. Now, every stock valuation must be adjusted for a higher cost of capital, which in practice means lower earnings multiples and more difficult access to cheap external financing.

BofA leaves no illusions: No cuts until 2028

Forecasts prepared by Bank of America analysts represent a turning point in the discussion about the future of US monetary policy. The institution openly states that investors should not expect any interest rate cuts before 2028. This assumption differs drastically from the market consensus, which as recently as early 2026 assumed that the Fed would begin easing policy in response to the first symptoms of a slowdown. The "higher for longer" scenario is ceasing to be just a slogan and is becoming a real operating schedule for global financial markets.

A multi-year period of high rates means that companies must restructure their capital. Companies that relied on cheap bank credit or low-interest corporate bond issues will find themselves under enormous pressure. Rising interest costs will directly lower operating margins, which will translate into weaker financial results in upcoming quarterly reports. Institutional investors, analyzing BofA's forecasts, are currently reallocating their portfolios. Capital is flowing out of the technology sector and growth stocks toward assets offering higher returns with relatively lower credit risk.

For the individual investor, this means the necessity of changing their time horizon. Short-term strategies based on rapid capital rotation in anticipation of a so-called Fed "pivot" are losing their rationale. If the prospect of high rates persists for the next three years, investing in stocks will require a much deeper analysis of cash flow. Highly indebted companies are becoming "value traps," while entities with large amounts of cash and low liabilities are gaining a competitive advantage. In its analysis, Bank of America emphasizes that the market must learn to function in an environment where money has a real price, and free liquidity is now just a memory.

Volatility in the markets: What are investors afraid of?

The nervousness that has taken hold on trading floors following the FOMC decision has its source in the scale of uncertainty. The market is not afraid of the rate hikes themselves, but of their impact on household consumption and the stability of the banking system. As early as May 21, 2026, the Fed sent a clear warning to the markets that rate hikes were back in play, but the scale of the reaction was moderate at the time. Investors believed that the central bank would maintain moderation. Today's 75 basis points is a signal that the Fed has stopped worrying about short-term sentiment on Wall Street and has focused on fulfilling its mandate regarding price stability.

Investors' concerns are centered around the risk of recession. History teaches that rapid interest rate hikes in a short time often end in a so-called "hard landing." If the cost of money becomes an insurmountable barrier for corporate investment, aggregate demand will begin to fall. This, in turn, will lead to rising unemployment and a decline in GDP growth dynamics. The treasury bond market is already discounting this scenario, as seen in the inverted yield curve, which is considered a classic indicator of an impending slowdown. Investors fear that the Fed will tighten policy too much, without giving the economy time to adapt.

Another aspect is currency valuation volatility. The US dollar, as the currency with the highest interest rates in the basket of major reserve currencies, attracts capital, which in turn hits emerging markets and US exports. US companies operating globally must deal with an unfavorable exchange rate, which negatively affects their earnings in dollar terms. This creates a feedback loop: the Fed raises rates, the dollar becomes more expensive, corporate profits fall, and the stock market reacts with a correction. Each of these elements fuels a spiral of volatility that makes it difficult to make rational long-term investment decisions.

Cryptocurrency market on the defensive: A lesson from the past

Digital assets react to Fed decisions with exceptional sensitivity. Cryptocurrencies, as highly speculative assets, are the first to feel the effects of withdrawing liquidity from the global financial system. Historical data in this context is merciless: in periods of monetary policy tightening by the Federal Reserve, Bitcoin recorded declines of up to 65% in value. The current situation, in which interest rates are rising and will remain high for years, drastically changes the attractiveness of Bitcoin as "digital gold" or a hedge against inflation.

Understanding this mechanism requires analyzing the relationship between the risk-free rate (treasury bond yields) and risky assets. If an investor can obtain a stable return of 5-6% per year by buying government bonds, their appetite for risky cryptocurrency assets drops. As a result, capital that flowed in a broad stream to the crypto market in 2020-2021 is now fleeing to safe havens. Projects based on so-called "leverage" and DeFi funds are becoming insolvent, which further deepens price declines.

BofA's forecast of no cuts until 2028 puts the cryptocurrency market in the face of a multi-year "winter." In such conditions, only those projects that have real-world economic utility or generate actual revenue will survive. Speculative gains based solely on "cheap money" forecasts have been permanently eliminated. Individual investors who entered the market at the peak of euphoria must now face the fact that the growth cycle that lasted nearly a decade has been interrupted by a paradigm shift in monetary policy. The cryptocurrency market is entering a selection phase where survival will become more important than a quick rate of return.

Political background: Is Trump happy with the Fed's actions?

Relations between the Federal Reserve and the US government administration have never been simple, but the current political climate adds a new dimension to them. As early as October 29, 2025, economists warned that the Fed must act under conditions of great uncertainty, balancing on a thin line between fighting inflation and avoiding a political crisis. Donald Trump, known for his critical approach to restrictive monetary policy, has repeatedly signaled that he expects the central bank to take actions supporting economic growth.

The situation on December 10, 2025, when the Fed had to intervene by purchasing treasury bills, was an attempt to calm the markets in the face of political tensions. Those actions, although interpreted as a kind of "nod" to the government's needs, were quickly replaced by the current policy tightening. For Trump and his circle, high interest rates are a brake that directly hits campaign promises regarding economic prosperity. Politicians often view the Fed's independence as an obstacle to achieving short-term economic goals, which leads to permanent tension between the White House and the building on Constitution Avenue.

This conflict has consequences for investors. When the government's fiscal policy is expansionary and the Fed's monetary policy is restrictive, a so-called "policy mismatch" occurs. The government pumps money into the economy through spending, and the Fed tries to pull it out by raising the cost of credit. Such an environment fosters volatility and makes stable long-term investment planning impossible. Investors must therefore track not only FOMC announcements but also political rhetoric, which may suggest changes in the approach to public debt management. Any attempt to exert pressure on Jerome Powell by the Trump camp is perceived by the market as a signal of a possible violation of the bank's independence, which usually results in further bond sell-offs and rising yields.

Where to look for stability? Summary for the investor

Seeking stability in current conditions requires discarding previous habits. A 75 bps hike is not an isolated incident, but a confirmation of a trend that defines a new era in finance. Investors who still believe in a quick return to the times of zero rates are becoming hostages to their own expectations. Understanding that inflation is currently a structural problem, not a momentary fluctuation, is the key to preserving capital.

It is worth comparing the facts that shape the current situation:
- The FOMC decision of December 10, 2025, was a signal that the Fed is seeking a balance between saving liquidity and fighting prices.
- Data from June 25, 2026, on accelerating inflation became the direct reason for the latest hike.
- BofA's forecast of no cuts until 2028 creates a time horizon for investment strategies.
- Historical Fed policy tightening has regularly caused declines in the risky asset market, including Bitcoin by about 65%.

For the Polish investor, the situation in the US has direct significance. Although the Monetary Policy Council (RPP) conducts its own policy, global capital costs set by the Fed affect the zloty exchange rate and the yields of Polish bonds. In conditions of global uncertainty, fleeing to cash or short-term debt securities that offer decent interest rates with minimal interest rate risk becomes the most rational move.

The key trap of the current situation is the belief that every drop in the stock market is a "buying opportunity." In an environment of high rates, "buy the dip" may turn out to be a strategy leading to deep losses if the fundamentals of companies are not verified in terms of their ability to service debt. Investors must stop looking at price charts and start analyzing balance sheets. The winners of the coming years will be those who accept that free capital will not return, and every investment decision must be supported by a reliable calculation of opportunity costs. The future belongs to liquidity, not speculation.

What this means for you

The Fed's decision to raise rates by 75 basis points is a signal that holders of variable-rate loans and excessively indebted companies will find themselves in a difficult financial situation. From the perspective of an individual investor, this means the necessity of revising the portfolio toward defensive assets, because the era of cheap credit, which supported stock market gains, has been officially ended for at least the next three years.

Questions and answers

Why is a 75 basis point hike so significant?

It is the most aggressive move by the Fed since 1994, signaling that the central bank is ready to sacrifice stock market conditions to crush inflation, which accelerated in June 2026.

How long will interest rates remain at a high level?

According to Bank of America forecasts, investors should not expect any interest rate cuts until 2028, which forces a permanent change in strategy for risky assets.

Is Bitcoin safe with such high rates?

History shows that Bitcoin is extremely sensitive to monetary policy tightening, and in the past, similar Fed moves led to declines in the value of this cryptocurrency by as much as 65%.

Will the Fed's decision affect the Polish market?

Yes, through global capital flows and the impact on currency valuations, Fed decisions affect the yields of Polish bonds and the zloty exchange rate, which forces local investors to track the US central bank's policy.

Who will feel the effects of these decisions the most?

The most severe effects will be felt by investors in risky assets, such as technology stocks and cryptocurrencies, which largely based their valuations on the low cost of money.

Sources

Article prepared by the Wiadomości PRO editorial team with the support of artificial intelligence. Facts come from the sources listed above.