Fed’s Dudley Says Strengthening Dollar Could Hinder U.S. Growth

A sharply stronger dollar could hamper Federal Reserve efforts to spur growth and lift inflation, a senior Fed official said today, in unusually direct remarks about the U.S. currency from the central bank.

“If the dollar were to strengthen a lot, it would have consequences for growth,” Federal Reserve Bank of New York President William C. Dudley said in an interview at the Bloomberg Markets Most Influential Summit in New York.

The Bloomberg Dollar Spot Index has touched the highest level on a closing basis since June 2010 amid bets that the Fed will raise interest rates in mid-2015, ending a near-zero rate policy in place since December 2008.

“We would have poorer trade performance, less exports, more imports,” Dudley said. “And if the dollar were to appreciate a lot, it would tend to dampen inflation. So it would make it harder to achieve our two objectives. So obviously we would take that into account.”

Fed officials generally avoid commenting on the dollar, which is the purview of the U.S. Treasury Department under Secretary Jacob J. Lew.

Dudley stressed that the currency was only a concern for the Fed to the degree that it affects progress toward the central bank’s goals for stable prices and maximum employment.

“Obviously, as the dollar moves, that affects the appropriateness of a given monetary policy to achieve those objectives,” he said.

Quarterly forecasts released last week showed that most Fed officials expect to raise interest rates from close to zero some time next year, as growth accelerates and price gains pick up toward the central bank’s 2 percent inflation goal.

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