Why Warren Buffett thinks interest rates exert a huge gravitational pull on asset values

The Federal Reserve sent a strong signal this week that interest rates will stay higher for longer. None other than Warren Buffett has argued that the Fed's tighter monetary policy has a significant impact on every single investment. "Interest rates are to the prices of all assets like gravity is to the function of the earth," the Berkshire Hathaway CEO said in a 2012 interview. "Everything is based off interest rates...

Investors use a rate based on prevailing benchmark interest rates to "discount" future dollars to the present. The higher the interest rate, the less that future money is worth today; lower rates heighten the value of future cash flows. Short-term Treasurys are "the yardstick against which other values are measured," Buffett said during Berkshire's annual meeting in 2021. "If I could reduce gravity's pull by about 80%, I'd be in the Tokyo Olympics jumping.

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