The Federal Reserve just raised interest rates again and continues to take an assertive stand against historically high inflation numbers.
What’s that doing to your investment portfolio?
“Interest rates are critical inputs to the valuation process—and influence the value of stocks and bonds,” says Robert R. Johnson, Professor at the Heider College of Business at Creighton University in Charlottesville, Virginia. “Warren Buffett has been quoted as saying, ‘Interest rates are to asset prices what gravity is to the apple. When there are low interest rates, there is a very low gravitational pull on asset prices.’ The effect of the near zero interest rates was to inflate the value of stocks because of the reduced incentive to hold risk-free government debt.