Interest Rate Hikes Research Articles

Risk Management and Responses of Banks under COVID-19 and Fed Rate Hike

This paper aims to study how banks carry out risk management and how to avoid systemic risks in the banking industry under the interest rate hike policy in the post-epidemic era. This paper divides bank risks into four main aspects to analyze the impact of sharp interest rate hikes on bank risk management in combination with the acquisition of Credit Suisse and the bankruptcy of Silicon Valley Bank. They are credit risk, liquidity risk, market risk (specifically interest rate risk), and systemic risk. After research, this paper finds that during the COVID-19 period, including interest rate hikes, governments have introduced corresponding policies for risk management. Moreover, when the market risk puts too much pressure on the bank, it will lead to credit risk and then liquidity risk, which may eventually trigger systemic risk under the joint effect. Given the current high inflation situation, the high level of interest rates will remain for a long time. Therefore, banks should do as much as possible to manage risks and reduce the possibility of triggering systemic risks.

Analysis of Enterprise Value Assessment: Evidence from Xiaomi Group

Xiaomi's initial public offering in Hong Kong in 2018 coincided with a downturn in the Hong Kong stock market, with several mainland companies listed in Hong Kong falling below the issue price on the first day of listing. Investors have to be more cautious nowadays under the complicated international background such as the Fed's interest rate hike. On this basis, this study chooses to assess the enterprise value of Xiaomi, using the EVA valuation method and combining the various data disclosed in Xiaomi's annual reports for 2018-2022 to measure the EVA value. After measuring the data required in EVA model, Xiaomi's overall trend in recent years has first increased and then decreased. In 2018-2019 the overall development is good, and the market outlook is vast; but in 2020-2022 the development is limited due to its own and external general environment, of which 2022 experiences a substantial decline since the IPO. Xiaomi's complex attributes make its valuation difficult, and these results estimate its intrinsic value through a clear method for investors.

The Impact of Fed's Interest Rate Hike on RMB Exchange Rate: Based on Stepwise Regression Modelling

In the late stage of the epidemic, the Federal Reserve raised interest rates several times in a row in response to domestic inflation, which had a significant impact on the international financial environment, as exemplified by the fluctuation of the RMB exchange rate. Although several worldwide and domestic scholars have used various models to study the relationship between them, there are no studies that have used linear regression models t to clarify how the two are connected. This study uses stepwise regression on the basis of linear regression to establish an optimal model for studying RMB exchange rate fluctuations and the Fed's monetary policy adjustment, which fills this research gap. It is found that Fed rate hikes cause the RMB exchange rate to decline., while the RMB exchange rate is also negatively affected by the seven-day repo rate in China's interbank market and the People's Bank of China's foreign exchange reserves. Therefore, this study concludes by recommending that investors, Chinese foreign trade firms and People’s bank of China take appropriate measures to minimize the impact of RMB depreciation in anticipation of the Fed's interest rate hike.

Bank Risk Assessment under COVID-19 Crisis

The global economy is showing signs of gradual recovery after experiencing stagnation during the COVID-19 epidemic. However, one major concern in the United States is the persistently high inflation rates observed in recent years. To address this issue, the United States has initiated a continuous interest rate increase plan as a measure to slow down the country's economic growth. While this strategy aims to curb inflation, it has created a series of challenges, particularly for the banking industry. The repercussions of these interest rate hikes have extended to various sectors of the economy. Notably, the technology sector has felt the pinch as higher borrowing costs have dampened the momentum of technology stocks, resulting in a decline in valuations for technology companies. Silicon Valley Bank, a financial institution heavily reliant on the technology industry, has also experienced the adverse effects of these interest rate hikes. Perhaps one of the most contentious developments resulting from these actions was Credit Suisse allowing UBS to acquire it at a price significantly below its market capitalization—approximately a quarter of its market value. This move was driven by concerns about preventing systemic risks. In sum, the far-reaching and, in some cases, severe consequences of the Federal Reserve's interest rate hike strategy underscore the critical importance of striking a balance between economic growth and inflation control.

Is interest rate hiking a recipe for missing several goals of monetary policy—beating inflation, preserving financial stability, and keeping up output growth?

After the corona crisis, and even more so when the war in Ukraine struck, the price levels of all goods in the US and Europe rose surprisingly quickly and persistently. The FED began in March 2022 and the ECB in July 2022 with historically unique interest rate increases to combat the wage-price spiral that had not yet begun. In this article we show that energy, commodities and food were the main drivers of inflation. For this reason, central banks' goal of weakening demand for labor through historically large interest rate hikes seems unwise. We argue that the current measures cannot achieve all of their objectives: slowing inflation, stabilizing financial markets and sustaining growth. If interest rates remain high, but external forces emerge with a lasting effect and keep inflation rates high, especially in smaller emerging countries, it will be difficult to counteract this on a country or regional basis through high interest rate policy and national control of the price- and wage-Phillips curve. Significant negative side effects of interest rate hikes increase the risk of not making the necessary investments and, in particular, weaken the bargaining power of particularly vulnerable employment groups. Other tools are needed to curb inflation and keep it under control, for example more investment in sectors with supply disruptions and a massive expansion of investment in renewable energy.

The impact of monetary policy normalisation on secured money markets

Rationale This article offers an empirical analysis of the main factors which explain the variations in the repo-deposit facility rate (DFR) spread in the euro area, focusing on the impact of monetary policy normalisation. The findings suggest that a notable rise in interest rate expectations was the main factor behind the widening of the spread in 2022. In 2023 the slowdown in the pace of interest rate hike expectations and the Eurosystem’s balance sheet reduction returned the spread to the levels prior to the start of the policy rate hiking cycle. Takeaways •The widening of the repo-DFR spread in 2022 arose mainly from interest rate hike expectations. •Other conjunctural factors such as monetary policy uncertainty and the demand for short-term assets also contributed to the widening of the spread. •The temporary tensions seen in this market in 2022 eased in 2023 with lower expectations of interest rate hikes.

The impact of the tapering off policy by the United States on the financial fluctuations of developing countries

In the summer of 2013 fluctuations in financial markets significantly increased, after the Fed announced it would increase interest rates to curb inflation. Financial market participants revised their expectations about when the Fed will start normalizing monetary policy. This study aims to analyze the impact of the tapering off policy of the United States on financial fluctuations of developing countries (Indonesia, Brazil, India, South Africa, and Turkey) using the VAR (Vector Autoregression) method. US tapering off policy refers to returning interest rates to more normal levels after a period of expansionary monetary stimulus. Financial fluctuations in developing countries may be affected by the normalization of US monetary policy through US interest rate hike channels that can attract capital from developing countries, causing exchange rate depreciation and increased financial market volatility. The research method used in this study is VAR analysis. The VAR model will be used to analyze how US tapering off policy might affect the dynamics of those variables in developing countries. The results of the study are expected to provide a better understanding of the impact of US tapering off policy on financial fluctuations in developing countries. The policy implications of this study can assist governments and financial institutions in formulating appropriate policies to address potential risks and manage financial stability in developing countries exposed to the impact of US tapering off policies.

The Impact of the US Increasing Interest Rate on Internet Industry: A Short-term Perspective

On March 16, 2022, Federal Reserve released the news that it was going to raise interest rate by 25 basis points, which officially commenced the year-long interest rate hikes. During this a year and half period starting from March 16, 2023, to July 26, 2023, Federal Reserve raised interest rate 11 times and brought the Federal Funds Rate reached 5.25% to 5.50%. This is the largest interest rate hike since 2000s and has had a significant impact on various areas, including the internet industry. This paper selected Dow Jones Internet (DJUSNS) index as an indicator to analysis how market reacts to interest rate hikes in the internet industry and uses ARIMA model to predict how DJUSNS would behave without the increasing in interest rate. This study predicts the possible future of the internet industry and provides investors who are interested in internet industry with market trends and investment opportunities. The paper concludes that the internet industry is negatively impacted by interest rate increases, primarily attributed to the following two factors: increase in the cost of capital and the decrease in investment returns.

The Transmissive Effect of the Federal Reserve's Interest Rate Hike on China's Government Bond Yields in the Context of the COVID-19 Pandemic

The global economy underwent profound shifts due to the COVID-19 pandemic, bringing monetary policies of major economies, such as the U.S., to the forefront. As the U.S. Federal Reserve's decisions can resonate globally, understanding their ramifications on China's bond market post-COVID-19 becomes paramount. This research delves into the ripple effects of U.S. monetary policy on China's bond market dynamics. Utilizing a mixed methodology, the study incorporates both quantitative and qualitative analyses based on financial records and historical data. Preliminary findings highlight the U.S.'s aggressive monetary responses during the pandemic, and how China's bond market, with high yields, presents a competitive return. Additionally, China's swift economic recovery and robust export figures reinforce its financial resilience. The study further examines the transmission effect of the U.S. Federal Reserve's interest rate policies on China's government bond yields. Ultimately, the research aims to offer comprehensive insights to navigate future economic landscapes in light of global challenges and monetary policies.

Research on Gold Price Changes and Factors Under the Background of Fed Interest Rate Hike

With the change of international form, the gold market is changing rapidly. In 2021, the U.S. stagflation was serious, so in 2022, the Federal Reserve adopted a series of interest rate hikes, coupled with the impact of the conflict between Russia and Ukraine. As a safe haven product, the price of gold fluctuated greatly in the short term. As an important commodity, gold is crucial to judge its price change trend. This paper mainly analyzes the U.S. monetary policy from 2022 to 2023. By studying the reasons and background of the promulgation of monetary policy, it judges the causes of the Federal Reserve's interest rate increase, and judges the background of joint inflation and regional conflict according to the international form in 2022. Combined with the change trend of gold price, it makes a joint analysis, and gets the impact trend of the Federal Reserve's interest rate increase on gold price from 2022 to 2023. Finally, it comes to the conclusion that the increase of interest rate will lead to the decline of gold price. In the early stage of interest rate increase and a large number of interest rate increases, the gold price is more affected by the increase of interest rate, so it is suitable to short gold at this time, while in the late stage of interest rate increase and the slowdown of interest rate increase policy, the gold price is more affected by other factors, so it is suitable to long gold at this time.

A Study of Systemic Risk in the Banking Industry

This paper introduces the function and operation mechanism of banks in the market, mainly studies the interest rate risk and liquidity risk in the market risk, and briefly analyzes the intermediate role of market risk in relation to several major events in 2023 and recent years in the financial industry, such as the collapse of Silicon Valley bank; In addition, policy and regulatory risks are also an important part of the external risks faced by banks. Several major bank failures indirectly caused by the Fed's interest rate hike have attracted the attention of global economists. The systemic risks caused by the mutual contagion and chain reaction of these risks cannot be underestimated, and will even lead to systemic financial crisis. At the end of this paper, systemic risk and systemic financial crisis are discussed, which are closely related to the whole market environment or the life of every civilian. Therefore, it is necessary to study systemic financial risk, so as to better develop risk management plans and countermeasures.

Changes and Impact of Monetary Policy in the United States: Quantitative Easing and Federal rate hikes

In response to the 2008 financial crisis, marked by the collapse of Wall Street giants like Bear Stearns and Lehman Brothers, the U.S. faced significant economic challenges. Traditional monetary policy tools proved ineffective as interest rates neared the Zero Lower Bound. Consequently, the Federal Reserve implemented Quantitative Easing (QE) as an unconventional measure to stimulate financial markets. This policy was executed in four phases, and by the end of the fourth round, U.S. inflation rates surpassed the 2022 target. Elevated inflation impacted living standards, prompting the FED to introduce interest rate hikes in 2022 to control it. Supply chain disruptions were a major contributor to this inflation spike. This paper uses qualitative and statistical methods to explore QE and the subsequent FED rate hikes. It emphasizes that QE essentially expanded the FED's Balance Sheet and uses visual data like graphs to illustrate the FED's actions since 2022. The article provides a comprehensive view of U.S. monetary policy adaptations during and after the financial crisis. The first three QE rounds addressed the 2008 crisis aftermath, while QE4 combated the economic fallout of COVID-19. The 4 rounds of QE and the last 2 years of Fed rate hikes have been generally successful. Both monetary policies have had some proven effect on the US economy. However, by critical thinking, QE has potential downsides, like fostering economic bubbles and inflation. And the Fed's repeated interest rate hikes have led to the problem of bank failure. Therefore, the Fed's monetary policy choices, especially unconventional ones like QE, require weighing benefits against potential risks.

Impact of quantitative easing on the U.S. economy

The US economy is facing instability due to high inflation and high credit card debt. Central banks have adopted quantitative easing (QE) as a monetary policy tool to promote economic growth and reduce the risk of deflation. QE measures originated from the 2008 global financial crisis to counter the threat of recession and deflation. This paper examines the impact of quantitative easing on the U.S. economy in four stages through data, image analysis and collection of related literature. Quantitative easing is a high-risk monetary policy. However, while quantitative easing stimulates the economy by lowering interest rates, it can also lead to inflation and borrowing pressures. This paper applies a combination of qualitative analysis and quantitative analysis, has been about the theory of monetary policy on the basis of the process of successive QE is summarized, and the Federal Reserve's aggressive interest rate hikes in the past two years to review. Finally, this paper analyzes the impact of QE, an unconventional monetary policy on the economy, and analyzes the future forecast. The research in this paper can be a certain reference for the monetary policy to cope with the crisis and unconventional situations.

The History of Fed Interest Rate Hikes and the Impact on Stock and Foreign Exchange Markets

Following COVID-19, America uses policies to boost its economy, inadvertently pushing inflation from 2018 to 2022. This paper discusses the history of the Federal Reserve rate increase and its repercussions on financial areas, especially on the stock and foreign exchange markets. The main analysis centers on the impacts of the markets and behaviors of the answers. Initially, the Federal Reserve rate increase seemed economically beneficial. However, long-term effects may negatively impact both domestic and international economies to some degree. By examining historical data, this paper dissects the rationale behind such moves and their direct outcomes. This offers a better perspective on potential future interest rate influences. For investors, to be positive and need to adjust their investment strategies to adapt when they face the Federal Reserve rate increase. For policymakers, during the fluctuations in interest rates, they need to maintain the global equilibrium as far as possible, without excessive disruption or impact.

Analyzing the Impact of Carbon Risk on Firms’ Creditworthiness in the Context of Rising Interest Rates

Carbon risk, a type of climate risk, is expected to have a crucial impact, especially on high-carbon-emitting, “polluting” firms as opposed to less carbon-intensive, “clean” ones. With a rising number of actions and policies being continuously proposed to mitigate these concerns and an increasing number of investors demanding more climate adaptation initiatives, this transition risk will certainly need to be incorporated into a firm’s credit risk assessment. In this paper, we explore the impact of the carbon risk factor, constructed as the daily median difference in default protection between polluting and clean European firms, on firm creditworthiness using quantile regressions on the tail distribution of credit default swap spreads for different maturities between 2020 and 2023. In particular, the recent European interest rate hikes lead to unexpected conclusions about when the carbon risk factor affects firm creditworthiness and how rapidly the net-zero economy transition must occur. Contrary to the previous literature, we find that investors are expecting the transition to occur in the medium-to-long term.

The impact of inflation on local government fiscal health

PurposeInflation and federal monetary efforts to control it with interest rate hikes have very real and overwhelmingly negative consequences on US local governments following the onset of COVID-19. This study explores the post-pandemic inflationary environment of US local governments; examines the impacts of inflation and high interest rates on local government revenue, operating costs, capital costs, and debt service; reviews local government inflation management strategies, including the use of intergovernmental revenue; and assesses ongoing threats to local government financial health and financial resilience.Design/methodology/approachThis study uses trend and literature analysis to comment on current issues local governments face.FindingsThe study finds that the growth of property values and resulting stability of property tax revenue has been important to local government revenues; that local governments bear very real burdens as operating and capital costs increase; and that the combination of high inflation and interest rates affects local government debt issuance by negatively affecting credit quality and interest costs, leading to municipal market contraction. Local governments have benefitted tremendously from intergovernmental revenue, but would be ill-advised to rely on it.Practical implicationsVulnerabilities owing from revenue mismatch with the economy; inadequate affordable housing, inequality, and social issues; a changing workforce and tight labor market; climate change; and federal fiscal contraction—all of which are exacerbated by high inflation and interest rates—require local governments to act strategically, boldly and collaboratively to achieve fiscal health and financial resilience, and to realize positive returns of investments in people and capital.Originality/valueThis work is unique in addressing the post-pandemic impact of inflation and interest rates on local governments.

The Impact of the Federal Funds Rate Hike on Walmart Stock Price: A Short-term and Dynamic Perspective

The relationship between interest rates and stock prices has been a topic of debate among scholars. Most scholars agree that interest rates are negatively correlated with stock prices in general, but there are differences in specific countries, industries, and stocks themselves. This paper take Wal-Mart's stock price before the Federal's interest rate hike on 17 March 2022 as a time series, and use ARIMA models to predict the future price, and test whether the interest rate hike affects Wal-Mart's stock price in the ultrashort term and the short term by examining the difference between the model's predicted price and the actual price. The finding of this paper is that interest rate hikes have a slight negative impact on Wal-Mart's stock price in the ultra-short term and no significant impact in the short term. Since previous studies on interest rates and stock prices have dealt less with short-term price changes of individual stocks, this paper provides direction for related research in this area and serves to fill this gap. The advice given to investors in this paper is that when interest rates rise, investors can go short on ultra-short investment period within a week, but if the investment period is longer than nine days, they should be careful to observe that other factors, because interest rate hike do not have a significant impact.

The Impact Caused by the U.S. Increasing Real Interest Rate on Volatility Index

This paper mainly focuses on the impact of the US interest rate hike on the volatility index after March 16, 2020. In this article, daily, weekly, and monthly volatility index data from 2010 to 2022 are extracted and the ARIMA model was used to determine and analyze the difference between actual value and fitted value of volatility index after increased rate. The study forecasts the effect of rate hikes on volatility index in short-, medium-, and long-term perspective. According to the ARIMA model, the interest rate hike has the greatest impact on the volatility index in the medium term, which is not obvious in the short term, and the impact of interest rate hike gradually decreases in the long term, and finally returns to the normal trend. Compared with other studies on the impact of interest rate hike on the overall economic activity, this paper only focuses on the impact of interest rate hike on the volatility index. Through the research of this paper, the policy makers can adjust the rate of interest rate hike according to the speed and amplitude of investors' response to the policy, so as to produce turbulence and panic on the stock market to a minimum extent.

The Trend and Spillover Effect of Fed's Interest Increase Policy

Since 2022, the Federal Reserve has started a new round of rapid rate increase process due to the continuous rise in inflation. However, due to the combined effects of the epidemic and the conflict between Russia and Ukraine, the impact of the current Fed rate hike on the global economy and finance is different from previous cycles. Based on the recent stance of the Federal Reserve, the market generally judges that the current round of interest rate increase cycle of the Federal Reserve has come to an end. This paper discusses when and how the Federal Reserve will cut interest rates. At the same time, relevant suggestions are put forward on how to prevent the spillover effect of the Fed's interest rate hike. Through way of qualitative analysis, the author believes in how to balance the three goals of inflation elimination, employment stabilization and financial stability, or the main line of the monetary policy decision of the Federal Reserve in the future.

Empirical Analysis Impact of Inflation Dynamics on Financial Market Performance

In 2023, in response to inflation, the Federal Reserve implemented an unprecedented strategy of rapid interest rate hikes. This approach had a significant impact on the financial market, causing extensive fluctuations, predominantly downward, especially in sectors such as the banking industry that have a strong correlation with the financial market. Therefore, understanding how inflation influences financial market performance is a crucial economic matter. This study utilizes data from the Consumer Price Index (CPI), Nasdaq index, and S&P500 index spanning from 2000 to 2023. Through correlation analysis and benchmark regression, we assess the impact of inflation on the financial market and provide policy recommendations. Based on the model analysis, this study finds that the CPI generally has a positive impact on the financial market. To examine the varying impacts of the CPI on the financial market at different time periods, this paper employs temporal heterogeneity analysis. This method evaluates the shifts in the influence of the CPI on the financial market by dividing periods before and after significant events. The findings suggest that the CPI had a negative correlation with the Nasdaq index prior to the August 2007 financial crisis. However, after this crisis and leading up to the emergence of COVID-19 in January 2020, there was a positive correlation between the CPI and the financial market. Yet, following the onset of the COVID-19 pandemic, there was not a substantial correlation between the CPI and the market index.