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Fed's Powell cautions about higher long-term rates as 'supply shocks' provide policy challenges

1. Powell signals higher long-term interest rates amid economic shifts. 2. Inflation expectations align with the Fed's 2% target; zero-rate era over. 3. Potential for frequent supply shocks complicates Fed's balancing act. 4. Current benchmark rate ranges between 4.25%-4.5%, indicating tight policy. 5. Fed reviewing communication strategies for better clarity on economic outlook.

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FAQ

Why Bearish?

Higher interest rates typically reduce borrowing and investment, negatively impacting stock prices. Historical instances show S&P 500 declines during periods of significant rate hikes.

How important is it?

Economic policy shifts from the Fed significantly influence investor sentiment and market direction, impacting S&P 500 valuations.

Why Long Term?

Sustained higher rates can lead to prolonged economic adjustments, affecting growth and corporate earnings over time. Similar effects were seen after the 2008 financial crisis which led to lasting economic slowdowns.

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