Why US rate hikes shake the world
How a Federal Reserve rate hike pulls money into the dollar and squeezes currencies, debts and growth elsewhere.
Transcript
The US central bank, the Federal Reserve, sets the base interest rate for dollars. When it raises the rate, holding dollars pays more.
Global investors chase the best safe return. So money leaves other countries and flows into American bonds.
To buy those bonds they need dollars, so they sell other currencies. The dollar strengthens, and other currencies weaken.
For other countries this hurts. Imports like oil and food cost more, and debts owed in dollars become heavier to repay.
Their central banks often raise their own rates to stop money leaving. That slows their economies, loans get costly, and growth drops.
It reaches everywhere because the dollar is the world's main currency: oil, trade, loans, and reserves are mostly in dollars.
When America raises rates, the world feels it.
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1:44Money and gold
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1:28How exchange rates work
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