Item — HN Reader

>The dollar has been weakening precipitously, with the dollar index declining nearly 10% over the past few months.

... which is still up 6% from its 5-year low (January 2018), up 24% from its 10-year low (April 2014), and down 6% yoy.

>I’m curious to hear tomorrow how the Fed intends to address this.

What is there for the Fed to address? A weaker dollar, in and of itself, benefits US exports and reduces the trade deficit.

1 comments

The difference between this moment and 2018 or 2014 is that we are in the middle of a bona fide crisis, and we went into it with rates already near rock bottom.

That leaves few options if dollar continues to weaken and inflation becomes concerning.

If inflation becomes concerning, rates near rock bottom is not a problem. You deal with inflation by raising rates, not by lowering them.

Yes, of course, I understand that. But in the middle of a recession that becomes Sophie's choice: do you raise rates to curb inflation while killing the chance of a recovery?

Ah, I see your point.

Still, this isn't the stagflation of the 1970s. While there may be underlying problems, the main issue is that Covid shut down parts of the economy, which also meant shutting down parts of employment. The trick really isn't to avoid inflation. The trick is to make it back to approximately normal without killing too many businesses and bankrupting too many families (while also not killing too many people). If inflation happens as a result, but we get back to a healthy economy, then we can worry about inflation. For the next one or two years, I don't think that inflation is the issue to focus on.

That is the big question and I think the answer remains to be seen. Is Covid an acute crisis where we quickly bounce back to "normal," or is it the catalyst for a broader deleveraging that may have been due for several years and with many of the layoffs being "sticky"