The Fed Raises Interest Rates: Implications for the Global Economy

JAKARTA, KOMPAS.com - The United States central bank, the Federal Reserve (The Fed), has raised its benchmark interest rate for the first time since July 2023.

This policy move is part of the Fed's efforts to rein in rising inflation, driven in part by surging oil prices.

The Fed's rate hike impacts not only the U.S. economy but also has the potential to influence currency exchange rates, bond markets, central bank policies, and stock valuations across multiple countries.

SHUTTERSTOCK/JANEWS Illustration representing interest rates, benchmark interest rate.

CNBC reports, citing economists and investment managers on Saturday (19/9/2026), that the renewed cycle of U.S. monetary tightening could strengthen the U.S. dollar, weigh on other currencies, and limit other central banks' ability to ease their monetary policies.

Against the backdrop of rising oil prices caused by conflicts in the Middle East, several countries are facing pressures such as higher energy costs, currency depreciation, and persistently high interest rates.

One of the fastest channels through which the Fed’s monetary policy affects the global economy is the U.S. dollar exchange rate.

Higher U.S. interest rates make dollar-denominated financial assets more attractive to investors.

This dynamic often supports a stronger U.S. dollar while putting pressure on other countries' currencies.

KOMPAS.com/SAKINA RAKHMA DIAH SETIAWANThe Fed’s interest rate hike impacts not only the U.S. economy but also has the potential to influence currency exchange rates, bond markets, central bank policies, and stock valuations worldwide.

Mark Zandi, chief economist at Moody’s Analytics, stated that the Fed’s rate hike, along with signals of further increases, exerts upward pressure on the dollar and downward pressure on other currencies.

"The Fed’s rate increase and signals of further tightening are causing upward pressure on the dollar and downward pressure on other currencies," Zandi told CNBC.

The dollar’s strength is especially notable since many key global commodities—such as oil, natural gas, and agricultural products—are priced in dollars.

This means that as the dollar strengthens, countries using other currencies face higher costs to purchase these dollar-denominated commodities in their local currency.

Zandi explained this dynamic creates economic pressure worldwide, particularly in countries whose currency or monetary policy is closely linked to U.S. interest rates.

"That indeed creates global pressure," Zandi said.

Such pressure is even more pronounced amid rising global oil prices driven by the Middle Eastern conflict.

Increasing energy costs add to import expenses, while domestic currency depreciation makes acquiring dollar-priced commodities more expensive.

The Fed’s policy is also grabbing the attention of Asian financial markets.

Navin Saigal, head of global fixed income for Asia Pacific at BlackRock, said that the markets’ generally hawkish interpretation of the Fed meeting could exert short-term pressure on Asian currencies and bond markets.

"The market's hawkish take on the Fed meeting may put near-term pressure on Asian currencies and bond markets," Saigal explained.

KOMPAS.com/SAKINA RAKHMA DIAH SETIAWANThe Fed’s interest rate hike impacts not only the U.S. economy but also has the potential to influence currency exchange rates, bond markets, central bank policies, and stock valuations worldwide.

The term hawkish refers to a monetary stance prioritizing inflation control, often through higher interest rates.

For foreign exchange markets, U.S. rate hikes increase the attractiveness of the U.S. dollar.

For bond markets, rising yields on U.S. government debt may influence investors’ capital allocation decisions globally.

Higher U.S. bond yields also raise the likelihood of capital outflows from other countries toward the U.S.