The Impact of the Fed's Interest Rate Hike on the Financial Industry: Focusing on the Exchange Market and Capital Market

Abstract

Since the outbreak of the Covid-19 epidemic, the Federal Reserve has implemented extremely loose fiscal and monetary policies, which has exacerbated the inflation problem in the United States. To combat high inflation, the Fed began raising rates in March 2022. This paper evaluates the impact of the Fed rate hike on the US financial sector, as well as on the foreign exchange market and the global capital market. The study found that higher interest rates could lead to higher interest rates in the interest rate market, and money would also flow from the stock market to the bond market, dealing a huge blow to banking funds. The paper also assesses the pace and magnitude of rate hikes and concludes that the Fed needs to slow and narrow the pace of rate hikes to prevent too fast and too large a rate hike from potentially causing chaos in the domestic financial sector.