The text from Fed Chairman Ben Bernanke’s speech in New York was just released. For a change, he actually mentioned the dollar and suggested that its movements could factor into policy decisions. That has led to a bounce in the Dollar Index from its daily low. The operative text is below:
“The foreign exchange value of the dollar has moved over a wide range during the past year or so. When financial stresses were most pronounced, a flight to the deepest and most liquid capital markets resulted in a marked increase in the dollar. More recently, as financial market functioning has improved and global economic activity has stabilized, these safe haven flows have abated, and the dollar has accordingly retraced its gains. The Federal Reserve will continue to monitor these developments closely. We are attentive to the implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate to foster both maximum employment and price stability. Our commitment to our dual objectives, together with the underlying strengths of the U.S. economy, will help ensure that the dollar is strong and a source of global financial stability.”
At the same time, Bernanke essentially promised to keep the same policies in place that are leading to a dollar decline. Specifically, he added:
“The Federal Open Market Committee continues to anticipate that economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period. Of course, significant changes in economic conditions or the economic outlook would change the outlook for policy as well. We have a wide range of tools for removing monetary policy accommodation when the economic outlook requires us to do so, and we will calibrate the timing and pace of any future tightening to best foster maximum employment and price stability.”
So the question now becomes, “Is talk enough for more than a bounce in the buck?” I don’t believe so, but the market action bears watching.
{ 2 comments… read them below or add one }
Boy, with the falling dollar it is a good thing that we didn’t move our manufacturing to China and will now have to pay more for all our imported necessities (food, medicine, socks).
Oh wait, we did.
The reason exports are not climbing high while the dollar is tanking is the fact we no longer make much here anymore. Those empty factories in your hometowns aren’t due just to the recession. If people paid attention they would have seen that the industry was leaving for the past decade.
No problem though, it isn’t like those businesses paid the bulk of your local taxes, hired your kids or sold & bought to your employers/businesses.
Cripes people, Ben and Washington are selling us out and we can’t be bothered to see it – let alone try and fix it.
Teresa– China pegs their currency to our dollar. So we have not seen the effects of the sinking dollar as we buy HUGE amounts from China. Maybe that will change… I doubt it though because we are the junkie and they are pusher. Complain as both countries do, no one really wants to stop our dysfunctional relationship… yet. –Michael