How does the U.S. Federal Reserve impact global markets?

The U.S. Federal Reserve influences global markets primarily through its monetary policy decisions, especially interest rate changes. When the Fed raises rates, it often strengthens the U.S. dollar, which can lead to capital outflows from emerging markets and higher borrowing costs worldwide. Conversely, lowering rates can encourage investment globally by increasing liquidity. The Fed’s policies also affect global commodity prices, trade balances, and investor sentiment. Since many countries and institutions hold assets in U.S. dollars or rely on dollar-based trade, changes in Fed policy ripple through global financial systems, impacting currency values, stock markets, and economic growth in other nations.