Why do stocks decline whenever investors think the Fed will raise rates?


If the Fed raises rates too high, then the next economic recession would be sooner and then the need to lower rates will be a little sooner instead of a little later. When the rates have to be lowered again, the price of stocks, bonds and houses would increase to return to normal levels again. Raising rates today shouldn't effect the price of stocks if you think long term.

If the Fed raises rates only enough to control inflation yet not slow the economy too much, then the Fed is doing it's job of keeping the dollar stable and doing a 'soft landing' to keep the economy from overheating yet not cause a big recession. That shouldn't have an effect on the price of stocks.

If the Fed keeps rates too low, then I think we will have more inflation that would slow the economy, turn to stagflation, cause a hard landing and then a recession. If inflation is allowed to get completely out of control, inflation would crash the economy if we have to turn to a barter economy when a wheel barrow full of $100 dollar bills taped into bricks of money isn't enough to buy a loaf of bread. Either way, it seems the Fed keeping rates too low and the prospects of having to increase rates in the future would cause fear and the price of stocks to decline.


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