Series Vol. 44 , 10 November 2023
* Author to whom correspondence should be addressed.
This article delves into the influence of Fed’s rate hikes on global financial markets. Being the central bank of the United States, the Federal Reserve wields significant impact in global finance and macroeconomics. The policy of increasing interest rates has sparked extensive debate and apprehension as it profoundly affects the worldwide financial landscape. After thorough examination of relevant literature and research findings, we ascertain that monetary policy’s impact on global financial markets can be primarily understood through several key aspects: 1) The impact of interest rate hikes on the stock market is predominantly negative, which may lead to capital outflows, dampened consumer sentiment and higher borrowing costs. 2) Interest rate hikes have an impact on changes in interest rates in the bond market, which may lead to increased debt expenses and inversions. 3) The interest rate hike influences the exchange rate changes in the foreign exchange market, attracting funds into the United States, resulting in other countries facing the risk of capital outflow and currency depreciation. This article explores the global impact of the Federal Reserve’s interest rate hikes on financial markets and provides valuable insights for policymakers and investors. Given the potential negative consequences of rising interest rates on stock and bond markets, investors may find it prudent to adjust their portfolios accordingly. Simultaneously, it is crucial to closely monitor global economic dynamics and monetary policies while maintaining flexibility in responding to market fluctuations. By doing so, informed investment strategies can be crafted based on these observations.
the federal reserve, interest rate hike policy, global financial markets, uncertainty, soft landing
1. Federalreserve.gov. (2019). Federal Reserve Board - Home. [online] Available at: https://www.federalreserve.gov.
2. Burton, M., Nesiba, R.F. and Brown, B. (2015). An introduction to financial markets and institutions. London Routledge.
3. Bernanke, B. (2022). 21st century monetary policy: the Federal Reserve from the great inflation to COVID-19. New York, Ny: W. W. Norton & Company.
4. X Lu, M Zhang. (2022). Fed interest rate hike: historical cycle, internal and external impact and empirical enlightenment. Financial Market Research,2022, (12):48-55.)
5. Capitaliq.com. (2019). S&P Capital IQ. [online] Available at: https://www.capitaliq.com.
6. Elif C Arbatli Saxegaard, Melih Firat, Davide Furceri and Verrier, J. (2022). U.S. Monetary Policy Shock Spillovers: Evidence from Firm-Level Data. International Monetary Fund.
7. Yahoo Finance (2023). Yahoo Finance - Business Finance, Stock Market, Quotes, News. [online] @YahooFinance. Available at: https://finance.yahoo.com.
8. He, D. (2023). How big is the impact of the Fed’s continued rate hikes. [online] paper.ce.cn. Available at: http://paper.ce.cn/pc/content/202303/03/content_269889.html [Accessed 22 Jul. 2023].
9. Sabri, B. and Nguyen Duc Khuong (2019). Handbook Of Global Financial Markets: Transformations, Dependence, And Risk Spillovers. World Scientific.
10. Lane, P.R. (2012). Financial globalisation and the crisis. Basel: Bis.
The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.