Why do Fed Hikes Affect the US Global Economy?

The Federal Reserve simply known as the fed is the central bank of the United States and its main purpose is to provide the nation with a safer, stable flexible financial and money system by so doing regulating the economy. In regulating the economy the fed makes policies monetarily to help maintain employment, keep prices stable and keep interest rates at a level that helps the economy, as well as the supervision and regulation of banks for safety checks and for consumer protection. We now have a fair idea of what the Fed is and what they do, so we can now move on to our topic on board, which is how fed hikes affect the US global economy.

As explained above the fed is the central bank for the U.S and any decision(s) by them is strongly taken and followed, all across the globe by decision and policy makers as well as investors. The United States is known to have the biggest economy and it’s the major source of capital for most countries both frontiers and emerging markets worldwide. The USD is the world’s reserve currency and this makes fed rate movements very crucial and important worldwide. In this sense any move or changes from the Fed have the power to shake or quiver world markets leading to apparent changes on the global market financially.

What happens when the Fed increases the interest rate? The global markets will react immediately to this as US bonds will be expected to pay a higher interest rates leading to volatility in the stock market. What will be witnessed is the pull back of foreign capitals from these frontier and emerging markets back to the US, this without doubt will realistically affect the financially status of such emerging markets.

The influence of the Federal Reserve on global economy cannot be underestimated as it has an upper hand in the world’s financial economy now.