Inside the Fed: The Invisible Hand Behind Global Markets

The US Federal Reserve, which people usually call the Fed, has a very big influence on the global stock market. It is the central bank of the United States. Its main job is to control inflation and help the economy grow. It does this by changing interest rates. When the Fed hikes interest rates, it makes borrowing money more expensive. This action has a quick effect on other countries, especially export-focused places like Taiwan.

For Taiwanese investors, a US rate hike often leads to capital flight. When US bank accounts and government bonds offer higher yields, investors feel it is safer to put their money there. As a result, foreign investors sell their shares in famous Taiwanese companies, like TSMC (台積電), and move their money back to the US. This movement of money depreciates the New Taiwan Dollar (NTD) and makes the local stock market go down.

On the other hand, when the Fed says it will cut rates, investors feel happy. Cheaper borrowing costs make it easier for businesses to grow. Many investors will then move their money back to emerging markets to look for better profits. Understanding how the Fed's choices affect our local market is very important for every investor in Taiwan.