Finally, an assertive course of action fosters the credibility of central banks, assuring market participants of stable monetary policymaking in the years to come. Historically speaking, markets understood this too: out of the 12 rate-hiking cycles from the 1950s until today, only one (1972-74) resulted in negative annualised returns of the S&P 500 throughout the respective tightening period.

Risky business

Risks abound everywhere you look. There is a chance of persistently higher inflation, of policy error or rate overshoot, and higher rates will likely induce volatility in equity markets in the short term; as do the risks of Covid variants, geopolitical tensions, energy crisis, and regulatory change.

In the medium to long term however, rates in the low single digits are more healthy than not and – as outlined above – equity markets tend to rise with their promise of a strong economy.

Fahad Kamal is chief investment officer at Kleinwort Hambros