Dollar hits 3-year low on Fed expectations

[The Northerner]

The dollar struck its latest three-year low against a group of six major currencies on Friday on expectations that the Federal Reserve will keep interest rates low to nourish U.S. economic growth despite rising oil and food prices.

Central banks overseas are increasing interest rates to fend off inflation. Higher rates tend to support demand for currencies.

But Fed Chairman Ben Bernanke has said rising commodity prices will have only a temporary effect on broader inflation in the U.S. So investors expect the key U.S. rate to stay near zero to help fuel domestic economic growth while millions are out of work.

The government said on Thursday that economic growth in the first three months of the year slowed to an annual pace of 1.8 percent from 3.1 percent at the end of 2010.

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/n/a/2011/04/29/financial/f093854D05.DTL

[ixion]

1. "will keep interest rates low to nourish U.S. economic growth despite rising oil and food prices."

Read that again, and then ask yourself: "Why is the cost of gas rising?"

Answer: To 'nourish' economic growth, by killing it.

[BzaDem]

2. The cost of gas rising has little to do with our monetary policy, and everything to do with supply

reductions (from Saudi Arabia and/or Libya) and inelastic demand for gas.

Our monetary policy hasn't changed in recent months -- yet that is where almost the entire spike in gas prices occurred.

[ixion]

3. No, the problem is precisely that it hasn't changed

and as far as supply and demand goes, OPEC just reported last week that their reserves are at capacity.

[BzaDem]

4. OPEC is full of it. If anything, our monetary policy is too TIGHT, not too loose.

http://blogs.wsj.com/source/2011/04/27/saudi-oil-production-doesnt-add-up-4/?mod=google_news_blog

Right now, the Fed needs to be doing more to combat unemployment -- not to combat the boogeyman of nonexistent inflation. If this were inflationary, we would be seeing it in other prices (not just food/energy). In reality, there is still significant slack in the economy and the Fed should be doing more easing (not less).

[Poboy]

5. R'd