Fed Doesn't Care About Dollar? Minutes Show Greenback Fixation

  • September Fed meeting minutes refer to greenback 24 times
  • Currency's gains hold down inflation, restrain exports

The Federal Reserve says it leaves the dollar policy to the Treasury. Yet the latest minutes show Chair Janet Yellen and her colleagues can’t stop talking about the currency’s strength.

Policy makers referred to the greenback 24 times in the minutes from the Federal Open Market Committee’s latest meeting on Sept. 16 and 17, when they decided to keep interest rates near zero. That’s up from 12 mentions in the July FOMC minutes, 13 in June, 12 in April, and 10 in March.

Several members of the committee saw a risk that “a higher foreign exchange value of the dollar could persist and, as a result, delay or diminish the expected upturn in inflation.” Personal consumption expenditures, a Fed-favored inflation measure, have remained below the Fed’s 2 percent target since April 2012.

The dollar fell 0.4 percent to $1.1276 per euro and dropped 0.1 percent to 119.93 yen, while the Bloomberg Dollar Spot Index declined 0.4 percent to 1,196.57 as of 5 p.m. in New York.

The central bank sketched out how the greenback has “strongly appreciated” against the currencies of most major U.S. trading partners and emerging economies. That’s holding back economic activity and weighing on exports, it said.

An appreciating dollar tends to restrain the U.S. economy by making American products more expensive abroad, while keeping down inflation by making imports less costly.

“The dollar has become a bit of an impediment in regard to their inflation target,” said Minh Trang, a senior foreign-exchange trader at Silicon Valley Bank in Santa Clara, California. “As the dollar has strengthened over the past six to nine months, commodity prices, import prices have dropped, which means lower inflation pressure.”

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