How US Dollar ($) is worsening the US Economy | Dollar Strengthening

How US dollar is worsening the US economy| Dollar Strengthening

A strong dollar is likely to weigh negatively US economic outlook and could alter how the Federal Reserve ultimately raises interest rates, economists surveyed by Bloomberg said.

Nearly half of the economists said that international fallout from a strong dollar was either somewhat likely or very likely to spill back to the US over the next 18 months and affect monetary policy. Just 28% saw the currency strength as unlikely to have any impact.

The dollar has risen about 13% this year against other major currencies amid geopolitical tensions following Russia’s invasion of Ukraine and as the Fed aggressively raises interest rates to fight an inflation rate that’s at a 40-year high. The survey of 40 economists was conducted Oct. 21-26. Officials are expected to continue their campaign with another 75 basis points increase. Their last forecast showed rates reaching 4.4% by year end from a current Target range of 3% to 3.25% and nudging to 4.6% in 2023.

A stronger dollar tends to damp inflation by reducing the costs of imports and lowering domestic production as it raises export prices.

“The Fed and its counterparts around the world are in the uncomfortable position hammering demand to meet a supply-constrained global economy,” said Diana Swonk, chief economist at KPMG LLP., in a survey response. “They understand there are spillover effects but have no way of overtly addressing those risks given their own domestic mandates.”

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What Bloomberg Economists Says… “Usually the trade deficit would balloon when the dollar appreciated as much as we had seen since last year. But that effect has been curiously absent so far, even as we are already about five quarters into the appreciation process. One possible explanation is that US is increasing its exports in energy products. The fact that this tightening channel of dollar is absent means that the dollar appreciation is less contractionary to the economy than historically

Sodhi Gautam

Sodhi Gautam

13 thoughts on “How US Dollar ($) is worsening the US Economy | Dollar Strengthening

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