NCPA - National Center for Policy Analysis


April 4, 2008

The Federal Reserve has been wise to keep the dollar weak as the economy navigates its way through the current liquidity shortage, says Robert McTeer, a distinguished fellow with the National Center for Policy Analysis.

McTeer, the former president of the Dallas Federal Reserve, says that he prefers a stronger dollar in the long run, but the time isn't right for it to regain its strength:

  • Right now the weak dollar is restraining imports and allowing exports to grow very rapidly.
  • In the third and fourth quarter net foreign trade was a positive to gross domestic product (GDP), especially in the third quarter.

Despite worries that the Fed's aggressive rate-cutting policy will aggravate inflation, McTeer says the central bank did the only thing it could given the problems with liquidity and the credit crisis in the banking industry.

According to McTeer, inflation is a problem and it will become more of a problem, but the Fed can only do one thing at a time.  "We had an emergency, we still have an emergency in our financial markets and if it wasn't handled right could lead to a depression, and the Fed was right to put inflation on the back burner while it dealt with this," he says.

McTeer believes data will show the economy in a mild recession, the impact of which will be lessened by low interest rates and easier access to money.

Source:  "Strengthen Dollar, But Not Yet,", April 4, 2008.

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