Who’s cutting, who’s hiking.

The Fed is tightening at 3.88% and the dollar is +0.3% against majors over 12 months. US rates and the dollar set global financing conditions, which steer capital into or out of emerging markets, moving their currencies, inflation and, in the end, their central banks' decisions.

The Fed has been raising its policy rate, now 3.88% (last move +25 bp in Sep 2026). Because the dollar dominates global trade, debt and reserves, US rates set the price of money far beyond the US.

Over 12 months the dollar gained 0.3% on average against 8 major currencies. Higher US rates relative to elsewhere draw money into dollar assets and lift the dollar; Fed cuts tend to weaken it.

The US real policy rate is +0.5%. Roughly half of cross-border bank loans and international debt are in dollars, so US rates set borrowing costs for governments and firms worldwide, and investors' appetite for risk.

When US rates fall and the dollar weakens, investors search for yield in emerging markets; when the Fed tightens, money flows back home. With the Fed hiking and the dollar little changed, the push on EM flows is toward outflows.

The median emerging-market currency moved -0.1% against the dollar over 12 months (dollar pegs excluded). Inflows support EM currencies; outflows weaken them and raise the local cost of dollar debt.

Median inflation across 25 emerging economies is 4.3%, versus 3.6% a year earlier. A weaker currency raises import prices (pass-through is typically stronger in EMs than in advanced economies), so dollar swings show up in EM inflation.

Of 16 emerging-market central banks tracked, 7 cut and 5 raised rates over the past 12 months. A Fed easing cycle and a softer dollar give them room to cut without destabilising their currencies; Fed hikes often force them to follow.

Inflation in the world economy is 4.1% (2025), versus 5.8% a year earlier. The dollar pushes on import costs; demand relative to trend, steered by interest rates, sets domestic pressure. Expectations and wages decide whether it sticks, and that is what the central bank responds to.

Over the past 12 months the dollar gained 0.3% on average against 8 major currencies. Because oil, food and much cross-border debt are priced in dollars, a stronger dollar raises costs for the rest of the world and tightens global financial conditions; a weaker one eases them.

The median policy rate minus inflation is +0.8%, above zero, so monetary policy is restraining borrowing and spending. Higher real rates cool demand and, with a lag of a year or more, inflation.

A stronger dollar raises the local cost of dollar-priced commodities for most countries; the dollar moved +0.3% against majors over 12 months. How much reaches consumer prices (pass-through) depends on the import share, 34% of GDP here, and on how firms price.

Growth of 3.5% in 2025 compares with a 2015–24 average of 3.2%. Growth above trend uses up spare capacity and lets firms raise prices; below-trend growth opens slack that holds inflation down. Interest rates steer this channel.

Consumer prices rose 4.1% on average in 2025, down from 5.8% a year earlier. The headline rate blends imported costs, domestic demand pressure and wages; food and energy make it more volatile than core inflation.

No survey measure is shown, so this step reads the trend: with inflation at 4.1% and falling, expectations look to be cooling. If people expect high inflation they push for bigger pay rises and firms raise prices pre-emptively, making it self-fulfilling.

Rising prices erode what pay can buy unless wages keep up. With inflation easing to 4.1%, real pay is recovering. Workers then bargain for catch-up raises, which can feed back into prices.

Of 35 central banks tracked, 14 cut rates in the past 12 months, 15 hiked and 6 held; the median policy rate is 4.25%. Central banks raise rates when inflation and expectations run above target and cut when inflation is falling back or growth weakens.