08.23.2019 0

If the Fed conducts monetary policy then why doesn’t it pay attention to exchange rates?

Trump is not wrong about interest rates and the strong dollar, but does the Fed have any ammunition to do anything about it?

President Donald Trump is not wrong. Relative to other countries, interest rates in the U.S., as low as they currently are, are higher relative to our trading partners. And the federal funds rate at 2 percent to 2.25 percent is well above the 10-year treasury and have been inverted since May and so has the 10-year, 3-month treasuries spread. In the meantime, the U.S. dollar versus the Chinese yuan and the euro remains quite strong, making exports to the U.S. much cheaper. But even if it started aggressively cutting rates right now, can the Fed really do much about it? We were at near-zero percent on the federal funds rate and did trillions of dollars of quantitative easing during the Obama administration and growth was still tepid as we lost market share to China. Is monetary policy out of bullets?

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