More important than the Fed?

Markets give no respite. After a promising start to October, we are once again at the year's lows. In a context of multiple sources of volatility, there is one topic that seems to draw all eyes above the rest: the Fed's rate hikes.

It makes sense. When the reference rate rises, the discount rate on assets increases and therefore—all else equal—their value falls. However, when we do a historical review of the calendar years in which the Federal Reserve raised rates versus when there was a reduction in them, we see that returns from 1928 to date are not very different: 9.7% vs. 9.6% respectively. Is there another factor that might be more relevant?

When evaluating the same period and comparing the market's average return in years when inflation was rising (+5.5%) with the periods when price changes decelerated (+14.7%), we see that the difference is much more significant.

By no means can we conclude from this that the movement of rates is irrelevant for financial assets, but perhaps inflation beginning to ease globally is better news than we think.