This lesson aims to clarify a core thread running through financial markets: Data → Policy → Market.

Instead of memorizing terms like the Federal Reserve, interest rates, QE, it’s better to understand the real operational logic of the Fed—how it uses policy tools to adjust funding costs and total liquidity, and how these adjustments gradually transmit to the US stock market and global capital flows. After learning this part, you'll be able to understand what the Fed is "saying" and better predict the next market move.

**Why can the Federal Reserve influence global capital flows?**

The Fed is like the "temperature regulator" of the financial markets. It assesses market conditions based on economic data such as GDP, CPI, and non-farm employment, then responds by adjusting interest rates and releasing liquidity.

It sounds like managing the US economy itself, but the question is: since the dollar is the global reserve currency and US stocks are the world’s largest capital market, when the Fed moves, capital flows immediately change.

When interest rates are raised, funds in US Treasuries and bank deposits feel "good returns" and avoid risks by not buying stocks, so money flows back from equities to bonds. Meanwhile, the dollar appreciates, and capital from emerging markets also flows into the US. At this time, US stocks are usually under pressure.

Conversely, when interest rates are cut, bonds and deposits become less attractive, and funds seeking higher yields start looking for better opportunities—stocks become the target. US stocks often find support during this period.

But here’s a key point: the policy’s impact on US stocks is never black and white. What truly determines the effect is "which direction the Fed adjusts," "how investors interpret this signal," and "what stage the market is currently in." The combination of these three factors explains why sometimes rate hikes can still lead to rising stocks, and other times rate cuts can cause stocks to fall.