After raising interest rates, the circulation of the US dollar will be reduced, and the US dollar will appreciate. Then, in order to avoid risks or return on investment, overseas investors will convert other countries' currencies into dollars and enter the US stock market or property market to realize wealth appreciation. In this way, the dollar in the market will be very popular and will appreciate further, thus returning to the United States and providing power for the American economy. As the world's largest economy, the monetary policy used by the United States will become the global weather vane. If the dollar raises interest rates and adopts a tight monetary policy, central banks will also take countermeasures.
What does it mean for the Fed to raise interest rates?
Raising interest rates is the behavior of the central bank of a country or region to raise interest rates, which increases the borrowing cost of commercial banks to the central bank, and then forces the market interest rate to increase. The purpose of raising interest rates includes reducing money supply, curbing consumption, curbing inflation, encouraging deposits and slowing down market speculation. Raising interest rates can also be used as an indirect means to increase the value (exchange rate) of domestic or local currencies against other currencies.
The Fed's interest rate hike means:
1. The stock market is depressed (the stock market is down, but there is also a slight upward trend).
2. In the case of reducing the speed of money circulation, inflation may be alleviated.
People spend less and save more.
4. Industrial and commercial enterprises reduce investment.
5. Stimulate the appreciation of domestic or local currencies.
6. Slow down the national or local economic growth.
What impact will it bring if it is under special circumstances?
The emergence of liquidity trap has aggravated inflation. If there is an imbalance in the economic structure, then there will be more serious inflation, which is mainly manifested in the fact that the market price of consumer goods does not fall but rises, while the asset price rises wildly.
Under the system of compulsory settlement and sale of foreign exchange, the interest rate increase of the US dollar may aggravate the inflow of short-term speculative capital, thus increasing the money supply. However, the overall effect of raising interest rates is often not reflected quickly, because it involves the whole economic system, or the linkage mechanism of the financial system, and it takes a long time to reflect the effect.