The U.S. Federal Reserve is tasked with keeping inflation under control, which typically means targeting an annual increase of around 2% in the Consumer Price Index (CPI). When inflation is too high, it puts pressure on household budgets and reduces corporate profit margins, so the Fed often hikes the federal funds rate (overnight interest rates) to put the brakes on the economy and cool prices down. The CPI rose at an annualized rate of 3.4% in August, prompting the Fed to hike rates for the first time in three years at its September meeting. Fed chairman Kevin Warsh also warned more rate increases might be on the way if inflation remains persistently high, and the latest batch of data suggests that is exactly what is happening. Rising interest rates can spell bad news for the stock market for a few reasons. In fact, the Fed's last rate-hiking cycle resulted in a bear-market decline of over 20% in the S&P 500 (SNPINDEX: ^GSPC) index. Here's what investors need to know.
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