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While current interest rate levels sit around 2.5 percent, with inflation sticking around, the Fed could continue raising rates to as high as four or five percent. Will this be disastrous for markets?READ THE ARTICLE
What the past tells us: While from a financial theory perspective, it might feel inevitable that higher interest rates mean more market volatility, as Ben Carlson says, “The stock market doesn’t always make sense.” During the 1960s, interest rates nearly doubled, yet the S&P 500 yielded a 7.7 percent annual return. In the 70s, interest rates continued to trend upward, entering double-digit levels, but throughout this time, inflation hovering at 7.1 percent could’ve been a bigger culprit to poor market output.
The complexity of volatility: It’s important to remember not one variable is to blame in times of market volatility. However, Carlson states, “If I had to rank them in terms of importance, inflation would get more first place votes than interest rates.” Ultimately, you cannot determine what the market will do next based on an isolated number of factors. And in the same light, you cannot make predictions around what happened in the past, given the dramatic shift in factors over time.