What is the FED

One of the Federal Reserve's goals is to maintain the stability of the financial system. It achieves that by trying to control the bubbles by adjusting interest rates.

Figure 1: How interest rates affect spending habits (image taken from here).

Figure 2: How interest rates affect the market (image taken from here).

• When interest rates are high we need to buy Bonds. We will have a coupon that pays a lot of interest and when the interest rates decrease, the market price of the bond will increase.

• When interest rates are low we need to buy Stocks. Ideally from companies with low debt, positive earnings, and strong price to book ratio. We need to determine the intrisic value and only a price below that figure.