Making sense of the meltdown in markets
Money Clinic with Claer Barrett
00:00
What's Happening When the Central Banks Are Raising Interest Rates?
The price of a stock or a bond is the present value of the cash it's going to deliver to you in the future. But those future cash floes have to be discounted because they're in the future and money has a cost. What's happening when there's inflation, and therefore the central bank is raising interest rates, is that discount rate on that future money is going up. So it's almost like mechanically, as interest rates rise, stock prices have to go down Because the discount rate of those futurecash floes is rising. There's more to it than that. There's fear and xiety and the risk of recession. But behind all that, there is this terrible mathematics
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