Often, comparisons are made between the 1994 Fed rate hiking cycle and that of 2004 and many have contemplated whether we could be headed for a repeat of 1994. In 1994 the Fed hiked interest rates from 3 per cent to 6 per cent in the space of 12 months.
There was significant spillover effects on global financial markets in particular as they related to a sharp decline in portfolio inflows into Latin America and the Mexican crisis ensued. In contrast, the Fed’s exit in 2004 had a much more muted impact on global markets. Nonetheless, markets reacted quite differently in the two episodes….what was the difference?