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Invest with the Fed: Maximizing Portfolio Performance by Following Federal Reserve Policy by Luis Garcia-Feijoo, Gerald R. Jensen, Robert R. Johnson

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APPENDIX

WHY INTEREST RATES MATTER

It all comes down to interest rates. As an investor, all you’re doing is putting up a lump-sum payment for a future cash flow.

Ray Dalio, founder, Bridgewater Associates

In the Introduction we established the power of the Federal Reserve to affect various aspects of the financial markets. Of particular interest to many investors is the Fed’s influence on the level of interest rates in the economy. But why are interest rates more closely monitored by investors than virtually anything else? This Appendix briefly outlines the four key ways in which interest rates influence asset prices. These are not separate and distinct influences but are all interconnected and part of the same story. First and foremost, interest ...

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