This research was published on June 7th, 2022 in Fortune

Short-term interest rates have risen sharply this year, driven by Federal Reserve rate hikes and the expectation of another 200 basis points of increases in 2022 as the central bank responds to stubbornly high inflation. Besides the resulting uncertainty and rattling of markets, a bigger fear is growing that the U.S. economy could be permanently returning to damaging, higher long rates. Having grown accustomed to the benefits of low and stable long rates—such as high asset valuations and long expansions—an inflection of the low-rate world would fundamentally change the business and investment environment.

Yet, while risks are the highest in a generation, it is premature and could be costly to rush to such conclusions. Too often, the risk is painted in terms of extremes, as seen in the current popularity of the 1970s analogy, a reference to a time when the U.S. economy was structurally broken and lived with long rates in the high single digits, and well into double digits in the early 1980s.