The Fed’s Dollar Distraction
The Fed has delayed increasing interest rates, because policymakers expect that dollar appreciation, by lowering import prices, will undermine their ability to meet their 2% inflation target. But while it is true that some global developments, such as falling commodity prices, push down US inflation, dollar appreciation does not.
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CAMBRIDGE – In its September policy statement, the US Federal Reserve took into consideration – in a major way – the impact of global economic developments on the United States, and thus on US monetary policy. Indeed, the Fed decided to delay raising interest rates partly because US policymakers expect dollar appreciation, by lowering import prices, to undermine their ability to meet their 2% inflation target.