Friday, June 26, 2026 at 11:00 AM
Original source
NY Fed — Liberty Street Economics
MacroLab briefing generated by AI for informational purposes. Original reporting by NY Fed — Liberty Street Economics. Not financial advice.
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Researchers at the New York Federal Reserve studied what happened to poorer and developing countries when the U.S. Federal Reserve raised interest rates sharply in 2022 and 2023. The Fed raises interest rates (the price of borrowing money) to fight inflation, which is when prices for goods and services go up across the economy. The study looked at whether these U.S. rate increases had spillover effects, meaning whether they affected other countries' economies and financial markets even though those countries didn't raise their own rates as much.
When the Fed raises rates, it makes borrowing more expensive in the United States, which can ripple across the world. Developing countries often borrow money in U.S. dollars from international lenders, so when U.S. rates go up, their borrowing costs rise too. This makes it harder for their businesses and governments to invest and grow. Additionally, investors around the world may move their money back to the U.S. to get higher returns, which can weaken other countries' currencies and stock markets. Understanding how badly developing nations get hit by Fed rate increases matters because it affects whether people in those countries can find jobs, whether prices stay stable, and how quickly their economies can grow.
Watch whether developing countries' borrowing costs keep climbing and whether their currencies weaken significantly against the dollar. Pay attention to whether their central banks (like the Fed but for other countries) have to raise their own rates even higher to protect their economies. Also monitor whether businesses in developing countries start cutting back on investment and hiring, which would signal the spillover effects are causing real economic pain.