Summary of If the Fed Acts, How Do You React?

The Liftoff Effect on Capital Flows

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If the Fed Acts, How Do You React? summary
What will happen to global capital flows as the Federal Reserve raises interest rates?

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Following the Federal Reserve’s December 2015 interest rate increase, market participants increasingly question what the rising rate environment will mean for global capital flows. Even when the Fed merely hinted in 2013 at the prospect of moving on interest rates, emerging market economies suffered an enormous capital exodus in the Taper Tantrum. This technical yet easily digestible analysis of rate hikes’ impacts from International Monetary Fund economist Swarnali Ahmed offers some clues as to whether history will repeat itself in 2016. getAbstract recommends this timely report to business and policy leaders.

In this summary, you will learn

  • What the Federal Reserve’s initial move on interest rates means for capital flows
  • How markets price and position capital globally
  • How emerging market economies can mitigate their outflow risk
 

Summary

From 1982 to 2006, the Federal Reserve conducted five “liftoff” events – characterized by the first interest rate hike after a period of stable or declining rates and marking the beginnings of extended phases of rate increases. In those times, emerging market (EM) economies experienced far greater turbulence...
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About the Author

Swarnali Ahmed is an economist at the International Monetary Fund.


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