Is the Federal Reserve devaluing the dollar? The Fed needs to walk a fine line between a reemergence of inflation and creating a recession with higher interest rates.
The higher dollar threatens to kill the U.S. post-recession economic expansion.
Is the Fed devaluing the dollar or just being cautious? The greenback has fallen against all of its 31 major peers in March. The biggest gain was posted by the Russian ruble and Brazil’s real. Emerging-market currencies had their best month (March 2016) in 18 years.
Investors have reassessed forecasts for the dollar.
The outlook has darkened notions of policy divergence between a tightening Fed and central banks in Europe and Asia. On Wednesday, March 30, the dollar lost 0.4% to $1.1338 per euro in New York. St. Louis Fed President James Bullard and San Francisco Fed President John Williams said an interest-rate increase as soon as April was possible.
The likelihood of a rate move to zero by the Fed is nil.
The economy continues to hold its own despites a slowdown in many other countries. The Fed is therefore cautious in raising interest rates. This cautious approach, in regard to interest rates, serves to devalue the dollar in order to bolster U.S. manufacturing.
The dollar is in serious trouble.
The Fed has given a clear signal they are concerned about the global economy. With that in mind, they won’t be tightening policy.
Sources for this post:
bloomberg.com Slower Interest Rate Path