There are clear indications now, that given the stubbornly high inflation, the US Fed will be more aggressive in its intensity of rate hikes. Inflation is up, partly due to external factors such as the war in Ukraine and the continuing covid shutdowns in China’s key manufacturing hubs. The US Fed influences employment and inflation levels primarily by using monetary policy tools to control the availability and cost of credit. Here, the Fed’s primary tool is the federal funds rate, changes in which influence other interest rates — which, in turn, influences borrowing costs for households and businesses as well as the broader financial conditions. When interest rates go up, borrowing becomes more expensive; consumption demand is impacted and capex is postponed. All these end up lowering wages and other costs, in turn bringing runaway inflation under control. Foreign portfolio investors (FPIs) tend to borrow in the US at lower interest rates in dollar terms, and invest that money in the bonds/equities of countries such as India in rupee terms to earn a higher interest rate.