By Deepak Singh
Earlier this year, the US Federal Reserve decided to take some hard measures in order to control inflation. How has it impacted the US markets?
During the pandemic, the Federal Reserve – in an effort to protect the US economy and ensure the smooth functioning of the markets, had implemented interest rate cuts and purchased treasuries and securities. By March 2022, it held assets worth almost $9 trillion.
While the post-COVID US economy bounced back quickly, it came with a very sharp rise in inflation. In an effort to arrest the runaway inflation, the Fed raised the interest rate earlier this year. It also indicated that quantitative tightening (QT) measures would be adopted to reduce the asset size.
The expected interest rate hike helped in managing liquidity. Liquidity simply means the ‘amount of money in the system which can be spent’. An increase in the interest rate makes borrowing costlier – which…
