{"id":14634,"date":"2015-11-21T10:20:51","date_gmt":"2015-11-21T15:20:51","guid":{"rendered":"http:\/\/olduvai.ca\/?p=14634"},"modified":"2015-11-21T10:20:51","modified_gmt":"2015-11-21T15:20:51","slug":"the-feds-dollar-distraction","status":"publish","type":"post","link":"https:\/\/olduvai.ca\/?p=14634","title":{"rendered":"The Fed\u2019s Dollar Distraction"},"content":{"rendered":"
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The Fed\u2019s Dollar Distraction<\/a><\/h3>\n<\/header>\n
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In its September\u00a0policy statement<\/a>, the US Federal Reserve took into consideration \u2013 in a major way \u2013 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.<\/p>\n

In reality, while currency movements can have a significant impact on inflation in other countries, dollar movements have rarely had a meaningful or durable impact on prices in the US. The difference, of course, lies in the US dollar\u2019s dominant role in the invoicing of international trade: prices are set in dollars.<\/p>\n

Just as the dollar is often the unit of account in debt contracts, even when neither the borrower nor the lender is a US entity, the\u00a0dollar\u2019s share<\/a>\u00a0in invoicing for international trade is around 4.5 times America\u2019s share of world imports, and three times its share of world exports. The prices of some 93% of US imports are set in dollars.<\/p>\n

In this environment, the pass-through of dollar movements into non-fuel US import prices is one of the lowest in the world, in both the short term (one quarter out) and the longer term (two years out), for three key reasons. First, international trade contracts are renegotiated infrequently, which means that dollar prices are \u201csticky\u201d for an extended period \u2013 around ten months \u2013 despite fluctuations in the exchange rate.<\/p>\n

Second, because most exporters also import intermediate inputs that are priced in dollars, exchange-rate fluctuations have a limited impact on their costs and thus on their incentive to change dollar prices. And, third, exporters who wish to preserve their share in world markets \u2013 where prices are largely denominated in dollars \u2013 choose to keep their dollar prices stable, to avoid falling victim to idiosyncratic exchange-rate movements.<\/p>\n

…click on the above link to read the rest of the article…<\/p>\n<\/div>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

The Fed\u2019s Dollar Distraction In its September\u00a0policy statement, the US Federal Reserve took into consideration \u2013 in a major way \u2013 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 […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[2],"tags":[6306,303,305,426,437,534,8402,805,839],"class_list":["post-14634","post","type-post","status-publish","format-standard","hentry","category-economics","tag-exchange-rate","tag-fed","tag-federal-reserve","tag-inflation","tag-international-trade","tag-monetary-policy","tag-project-syndicate","tag-trade","tag-us-dollar"],"_links":{"self":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/14634","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=14634"}],"version-history":[{"count":1,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/14634\/revisions"}],"predecessor-version":[{"id":14635,"href":"https:\/\/olduvai.ca\/index.php?rest_route=\/wp\/v2\/posts\/14634\/revisions\/14635"}],"wp:attachment":[{"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=14634"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=14634"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/olduvai.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=14634"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}