Read the article titled "Renewed Inflation Fears Drive Stock Prices" published in the Wall Street Journal on April $2,2024($a pdf copy of the article can be found in your relevant homework assignment folder$).$ This article describes how the stock market and interest rates have a long and illustrious history of locking in epic battles for dominance of the financial markets. When rates go up$,$ the stock market will sell, and vice versa. Most know that nominal interest rates can cause stock market volatility, but rising real interest rates can derail even the most stubborn of Bull Markets. From the end of $2023$ into this year, the market began a strong rally based on the premise that the Fed was going to cut interest rates five or six times. The sustained market rally that we have been experiencing since late October is starting to raise concerns. It aligns perfectly with the "Halloween Effect" $($market rallies that start in October and end around May Day$),$ and the catalyst for the initial rally is also becoming less likely. The market began to rally in October $2023$ because Treasury refunding needs were less than expected, and investors started to price in rate cuts in $2024.$ While the Fed recently affirmed their rate cut forecast for $2024,$ as the economic data continues to come in better than expected the likelihood of zero rate cuts in $2024$ increases. The question then is$,$ if we do not get any rate cuts in $2024,$ how will the equity markets that aggressively priced in lower interest rates react? With recent data on inflation rate and interest rates remaining stubborn and the possibility of zero rate cuts in $2024$ increasing, the equity markets could face a potentially problematic second half of $2024.$ After reading this article, answer the following questions:

a$.$ Why do interest rates affect the equity markets so strongly?

b$.$ How could hotter inflation affect stock earnings?

c$.$ Based on the current economic data, what do you believe the Fed's rate policy will be in the second half of the year? Explain.