Exploring the Motivation and Impact of the Fed's Rate Hike and Tapering

Abstract

After more than three years, the Federal Reserve has once again entered the interest rate hike cycle - the Fed recently announced a 25BP increase in the target range for the federal funds rate to between 0.25% and 0.5% (this is the Fed's first rate hike since December 2018) while hinting that it will soon begin to reduce its balance sheet. The Fed's rate hike and tapering based on continued high inflation will undoubtedly have a series of profound effects on the global stock market, bond market, currency market, commodity market, and other markets, as evidenced by the possible divergence in the performance of different sectors of the US stock market, with the growth sector suffering a certain impact; interest rates on US bonds will also rise sharply, etc. For China, we have to guard against the negative impact of the Fed's interest rate hike spillover effect on the economy.