Many of these countries may be downgraded by rating agencies and may experience significant capital outflows, particularly if the US economy recovers more strongly and if lift-off happens sooner or at a faster pace than markets may have anticipated. This may elevate global financial stability concerns.
Faced with competition from firms directly tapping capital markets, banks are now setting their interest rates for lending more closely in line with prevailing market rates. Shrinking interest rate margins are the result. Any change in official interest rates will therefore translate faster into adjusted spending plans of the economic agents in the non-financial sector. Thus, there is an acceleration of monetary policy transmission.