Will Fed easing do long-term damage to the Dollar?
*Reuters, by Steven C. Johnson, March 5, 2008
“Fed’s rate cuts may do long-term dollar damage
By many measures, confidence in the dollar has never been lower, and some fear more Federal Reserve interest rate cuts will make matters worse by swelling inflation and undermining long-term U.S. economic health.
The Fed has cut benchmark interest rates from 5.25 percent to 3 percent since September, and the central bank’s Chairman Ben Bernanke has signaled he would reduce them further to boost an economy that many on Wall Street and beyond fear is already in recession.
That’s pushed the dollar to an all-time low against a basket of currencies and the euro to $1.5275 for the first time in its nine-year history. The Fed’s own broad trade-weighted dollar index fell to a 12-year low.
But whether the central bank succeeds in forestalling recession is of little consequence to dollar investors these days. The most optimistic forecasts call for little more than anemic growth even if the Fed succeeds.
More troubling is the fear that whatever success the central bank achieves will have been bought at the expense of future inflation, shattering confidence in the dollar.”
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