Why the World Is Watching U.S. Interest Rates

With U.S. short-term interest rates headed toward their highest levels in almost a decade, here’s something worth considering: The rest of the world has borrowed so many dollars that the global repercussions could be greater than ever.

Events of the past several weeks have helped convince markets that a long period of extremely low interest rates might finally be coming to an end. Congress has approved hundreds of billions of dollars in tax cuts and spending increases, at a time when inflation and wage growth suggest that the economy is already heating up. As a result, investors increasingly expect the Federal Reserve to tighten monetary policy: Prices in futures markets, for example, imply that the central bank’s short-term interest-rate target will rise to 2 percent by December, a quarter percentage point more than what was expected three months ago. Here’s how that looks: