Fed Chair Jerome Powell Just Sent a Signal That Could Shake the Stock Market

By Brett Schafer – Mar 29, 2026 at 6:15AM ESTKey PointsThe Federal Reserve is worried about inflation getting out of control again. The central bank of the United States kept rates unchanged at its latest meeting, but is not opposed to raising them in the future if it wants to tamp down inflation. If inflation gets worse and interest rates are raised, that is likely bad news for the stock market. Rising levels of inflation wrecked the stock market party in 2022. Could the same happen in 2026?

Federal Reserve Chair Jerome Powell certainly thinks it is a possibility. After the Federal Reserve decided to keep interest rates unchanged at its latest policy meeting, the central bank's leader said it is taking a wait-and-see approach to policy decisions. Specifically, Powell and the rest of the bank are worried about a spike in inflation and whether they will have to raise interest rates to bring it back down. This could shake the stock market and even bring an end to the current bull market in artificial intelligence (AI) stocks. Image source: Getty Images. Worried about inflation over all else One of the Federal Reserve's key concerns is managing inflation. If inflation runs too high, it will raise its benchmark interest rate to tamp down on demand. If inflation is too low, it will try to lower interest rates to stimulate the economy. The problem with raising interest rates is that it can negatively impact parts of the economy and financial markets, even inducing a recession. Mortgage rates will be higher for homebuyers, as well as for virtually all kinds of loans people want to take out to manage their financial lives. Powell says the Federal Reserve is currently concerned about the impact of spiking energy prices and how they could lead to more inflation. If inflation rises well above its 2% target again, it is likely that the Federal Reserve will raise its benchmark interest rate from its current range of 3.5% to 3.75%. How does this impact the stock market? When debt is more expensive to obtain, it can reduce investor aggressiveness and make Treasury bills more attractive to buy. Right now, the market is being driven by the growing spending from AI companies. A lot of this growth is fueled by debt. Essentially, the Federal Reserve may take the punchbowl away from the party before it gets sloppy, which may be good for the economy in the long term, but that does not necessarily mean it will be good for the stock market in the short term. Are interest rate hikes in the cards? Predicting what the Federal Reserve will do is extremely difficult. Not even its members can agree on what it will do this year, as it has to respond to developments in the economy. Half of its members expect no changes in interest rates this year, but the actual outcomes of the Federal Reserve's interest rate decisions relative to its historical expectations have poor predictive power. However, if inflation rears its ugly head again and the Federal Reserve does raise interest rates, it will likely not be good for stocks.Read NextMar 29, 2026 •By Selena MaranjianIf You'd Invested $1,000 in Netflix (NFLX) Stock 20 Years Ago, Here's How Much You'd Have Today (Spoiler: It Might Make You Cry)Mar 29, 2026 •By Sean WilliamsPrediction: The Trump Bull Market Is Coming to an End, and This Historically Flawless Forecasting Tool Will Be Correct, Yet AgainMar 29, 2026 •By Adria CiminoIs the Stock Market About to Crash? Here's What 100 Years of History SaysMar 29, 2026 •By Sean WilliamsIf You Think President Donald Trump and the Fed Are Feuding Now, Wait Until the Effects of the Iran War Hit the Inflation ReportMar 28, 2026 •By Johnny RiceStock Market Crash in 2026? The S&P 500 Sounds an Alarm as Recession Odds Just Hit Their Highest Level in Years. Here's What History Says Happens Next.Mar 28, 2026 •By John BallardVCIT vs. IGIB: Which Corporate Bond ETF Is Safer?About the AuthorBrett Schafer is a contributing Motley Fool stock market analyst covering consumer goods, financials, technology, and industrials. Brett is a self-taught investor and has hosted the Chit Chat Stocks podcast since 2018. He previously worked as a lab engineer for science laboratories. He holds a bachelor’s degree in mechanical engineering with minors in finance and mathematics from Washington State University. His lab work on Major League Baseball’s juiced ball problem was featured in The Wall Street Journal and other national outlets.TMFBrettSchaferX@CCM_Brett