The financial markets worldwide have been in a jittery over the past few weeks ahead of the December 15-16 US Federal Reserve meeting that’s likely to have a rate “liftoff”. But does a rate liftoff or upward revision of interest rates in the US necessarily warrant a jolt based reaction that the financial markets are witnessing over the past few weeks, which is emanating from the fear of a capital flight out from the emerging markets.
The answer to this move lies in understanding the fundamental objective of the Fed to contemplate a hike in their benchmark interest rate. To help people understand this answer, we will step aside, for a moment, from our usual data analysis and reasoning stemming out of that, and use an analogy that will help readers understand this situation in the right perspective.
