Definition
Federal Reserve (US Fed)
The Federal Reserve is the central bank of the United States, setting US interest rates and money supply, with policy decisions that ripple across global markets including India.
The Fed controls the world's reserve currency, so its rate moves drive global capital flows. When the Fed hikes, dollar assets become more attractive, often pulling FII money out of emerging markets like India, weakening the rupee and tightening global liquidity.
The Fed's dual mandate is maximum employment and stable prices. Indian markets react sharply to Fed meetings and the chair's commentary, since US policy shapes the cost of global capital that India relies on for portfolio and debt inflows.
Related terms
- TaperingTapering is the gradual reduction of a central bank's bond-buying stimulus, a step toward tighter policy without an immediate rate hike.
- Dollar Index (DXY)The US Dollar Index (DXY) measures the dollar's value against a basket of six major currencies, dominated by the euro, serving as a global gauge of dollar strength.
- Federal Open Market Committee (FOMC)The FOMC is the Federal Reserve's policy-setting committee that meets eight times a year to decide US interest rates and the path of monetary policy.
- Dot PlotThe dot plot is a chart in which each FOMC member anonymously marks their forecast for future US interest rates, signalling the committee's expected policy path.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.