2022 Fed Rate Hiking Cycle

2022 was the year monetary policy normalization overwhelmed every asset class. After keeping rates at zero through 2021 despite accelerating inflation, the Fed raised rates 425 basis points in 9 months, from 0-0.25% in March to 4.25-4.50% in December. This was the fastest hiking cycle since 1980. The cross-asset damage was historic. The S&P 500 fell 19.4%, its worst year since 2008. Long-duration Treasuries lost 31%. Growth stocks crashed, Meta fell 64%, Tesla fell 65%, Amazon fell 50%. The 60/40 stock-bond portfolio posted -17%, its worst year since 1937, as the traditional negative stock-bond correlation broke down in an inflation shock. Bitcoin and crypto crashed 70%+. Ark Innovation ETF fell 67%. Private market valuations had to reprice dramatically. The dollar (DXY) rallied to 114, its highest level since 2002, breaking global markets via the dollar-strength-tightens-financial-conditions channel. Emerging markets suffered. European energy crisis amplified by the Russia-Ukraine war pushed CPI over 10% in the UK and Germany. The lesson was about duration. Every asset is short rates in some form. When real rates move from -1% to +1.5%, every discount rate assumption gets repriced. The zero-rate regime had distorted valuations across private markets, venture capital, growth equity, long-duration bonds, and crypto, all of which had to mark-to-market when rates normalized.