The Effect of the Fed Interest Rate Hikes on the Financial Crisis Evidence from Emerging Market Economices

Abstract

The purpose of this paper is to systematically study the economic consequences of this policy adjustment by analysing in depth the five interest rate hike actions of the Federal Reserve and their chain reactions in emerging market economies, applying economic principles and methods. In particular, the central question of concern is whether the Fed's interest rate hiking policy constitutes an important trigger of the financial crisis in emerging markets. In order to shed light on this complex phenomenon in a comprehensive manner, this paper not only analyses in depth the macroeconomic logic behind the Fed's interest rate hike, but also explores its transmission mechanism in emerging market economies, as well as the economic vulnerability of these countries in the face of external shocks. The results of the study show that the collapse of emerging countries as a result of the Fed's interest rate hikes seems to be inevitable, but we can draw insights from it: actively promoting the reform of the international monetary system and supporting the inclusion of more types of currencies in the international trade and investment settlement system has become a common choice, including for some Western countries, as well as the need to continue to optimise the economic structure of the domestic economy and to strengthen the ability to manage and control the comprehensive risks.