Fannie Mae has never publicly disclosed how much money it could lose if interest rates rose 1.5 percentage points in a very short period of time.
Lower interest rates are usually considered good for stocks because they lower the cost of borrowing and make bonds a less attractive alternative investment.
Rising interest rates are considered bad for stocks because they raise the cost of doing business and depress corporate earnings and because higher yields make bonds relatively more attractive than stocks to investors.
It's one of the fundamental principles of the stock market: When interest rates go up, stocks go down. And along with financial companies and cyclicals, technology companies - with their sky-high price-to-earnings multiples - should be among the biggest losers in an environment of rising rates.
To finance deficits, the government must sell bonds to investors, competing for capital that could otherwise be used to invest in stocks or corporate bonds. Government borrowings raise long-term interest rates, stifling economic growth.
Business cycles lengthened greatly during the 20th century, as central banks learned to manage national economies by raising and lowering interest rates.
It has been said that the Fed's job is to take the punch bowl away just as the party gets going, raising interest rates when the economy is growing too fast and inflation threatens.
The Fed's ability to raise and lower short-term interest rates is its primary control over the economy.
To investors, job creation is a second-order effect. Market participants care first about interest rates, exchange rates, bond prices and the one great factor that affects all three: the long-term solvency of a bond company called the U.S. government.
The greatest economic power might in fact remain in the hands of the Federal Reserve. Economists credit the Fed's policy of keeping interest rates at historic lows with helping to pump up the economy and bring unemployment down.
