Why did the Fed raise interest rates？ What does raising interest rates mean？ Does it affect the China stock market？

As the most influential central bank in the world, the adjustment of the interest rate policy of the Federal Reserve has a far-reaching impact on the world, especially the global financial market, which is prone to become turbulent under the adjustment of the interest rate policy of the Federal Reserve. So, what does the Fed’s interest rate hike mean for the China stock market?

First of all, the Fed’s interest rate hike means that the overall interest rate level in the United States will rise.The Fed’s interest rate hike is not the deposit and loan interest rate that we can usually contact the most, but the interest rate of the Fed in the interbank lending market, which is called the federal funds rate, which is equivalent to the benchmark interest rate of other interest rates.

Because after the Fed raises the interbank lending market interest rate, the cost for other financial institutions to borrow money from the Fed will rise.

As the Federal Reserve is the largest participant in the interbank lending market, the financing it provides will occupy a large proportion in other financial institutions, and the increase in financing costs is difficult to digest by itself and can only be passed on to others, so the financing interest rates provided by these financial institutions to others will also rise. From this transmission, the interest rate level of the whole market will rise.

Second, the Fed’s interest rate hike means that inflation in the United States has not been effectively controlled.The reason why the Fed wants to raise interest rates is generally because the inflation in the United States is too high. Because raising interest rates can encourage residents to save more and spend less, it can also curb financing and loans, thus curbing investment and consumption. When investment and consumption are suppressed, it will help to reduce inflation.

Therefore, the Fed insists on raising interest rates, which is probably due to the high inflation in the United States, and at the same time, it can’t find other better ways to reduce inflation, so it can only use the way of raising interest rates to fight poison with poison.

As the Fed’s interest rate hike will lead to an increase in the interest rate of the whole society in the United States, it will inevitably have a major impact on the financial market in the United States, and the stock market is the first to bear the brunt. Therefore, as soon as the Fed raises interest rates, the US stock market will probably fall.

So, what impact does the Fed’s interest rate hike have on the China stock market?

The impact of the Fed’s interest rate hike on the China stock market mainly includes the following aspects.

On the one hand, it may cause the outflow of foreign capital from China stock market.After foreign capital can directly invest in China’s A shares through Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect, the proportion of foreign capital in the A-share market has increased significantly.

However, foreign capital can directly invest in A shares, which is a double-edged sword for A shares. The inflow of foreign capital can boost the rise of A shares, and once it flows out, it will accelerate the decline of A shares. Even the inflow and outflow of foreign capital will soon become the vane of the rise and fall of A shares.

The Fed’s interest rate hike may increase the willingness of foreign capital to flow out of A shares. Because the Fed’s interest rate hike means that the risk-free interest rate in the United States will rise, which will attract free-flowing profit-seeking capital from all over the world to flow to the United States, which may include foreign capital in China’s stock market.

In addition, the Fed’s interest rate hike will also cause the US dollar to appreciate and the RMB to depreciate against the US dollar, which may also cause foreign investors to sell their A shares and increase their holdings of US dollar assets.

On the other hand, it affects investors’ confidence in the stock market.When the Federal Reserve raises interest rates, the US stock market will probably fall, and once the US stock market falls, other major stock markets in the world will also fall. When the world’s major stock markets fall, the mood of domestic investors will inevitably be affected, and it is difficult to remain optimistic about A shares.

In addition, the Fed’s interest rate hike will also hurt the confidence of domestic investors if foreign capital flows out of A shares on a large scale. After all, investors in China are still not so confident in the financial market. Otherwise, the proportion of foreign capital in A-shares is not very high, and it will not be regarded as a weather vane by many people. Therefore, once foreign capital flows out on a large scale, domestic investors are also prone to become pessimistic.

In a word, raising interest rates by the Federal Reserve is not a good thing for the China stock market. If the US stock market falls because of the Fed’s interest rate hike, the China stock market will also be hard to escape.