#FedRateCutAffectsDollarTrend Fed Rate Domination: How the Federal Reserve Controls Markets The Federal Reserve (Fed) dominates financial markets through interest rate policies, affecting everything from currency strength to stock prices and global liquidity. Here’s how the Fed’s rate decisions shape market dynamics: ⸻ 1. The Fed’s Control Over Liquidity & Credit The Fed’s primary tool is the Federal Funds Rate, which influences: • Borrowing Costs → Lower rates make credit cheaper; higher rates tighten financial conditions. • Liquidity Flow → Easy money fuels risk assets; tight money suppresses speculative activity. • Yield Curve Shape → Short-term vs. long-term rates impact bond markets and economic expectations. a) Rate Hikes (Tightening Cycle) → Contractionary Effects • USD Strengthens → Higher rates attract global capital. • Equities Decline → Higher borrowing costs hurt corporate earnings. • Bonds Sell Off → Yields rise as investors demand better returns. • Crypto & Commodities Drop → Less liquidity for risk-on assets.