Investor unease is growing in response to the Federal Reserve's rapid rate hikes, the fastest seen in 40 years, brought about by mounting inflation. This concern arises despite the continued robust GDP growth, vigorous consumer spending, and a resilient job market.
Bank of America analysts link this economic strength to the extended period of low interest rates that followed the Great Recession until the Fed's inflation fight began in March 2022. In the aftermath of the 2008 crisis, near-zero rates were used to stimulate the economy, allowing households and businesses to secure low-cost loans. This strategy has provided a buffer against the immediate impacts of swift rate hikes.
The era of ultra-low-cost debt has heightened the perceived severity of current rate increases. While equities forecasters are predicting a gloomy outlook due to these changes, many borrowers remain insulated thanks to their low-interest loans. BofA analysts project that even when the effects of higher rates fully materialize, they are unlikely to trigger a recession.
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