Opinion Federal Reserve should not bother to

Opinion: the Federal Reserve should not bother to be afraid of inflation and the strong dollar

Several years
analysts tirelessly wondering when will
The Fed will begin raising key rates,
but at every meeting of this decision
It has been postponed for a variety of
reasons. Last year, the market is already believed in the imminent changes, but do not
It happened, and this year all
We are waiting for a decisive step by the regulator in the summer,
but suddenly prevented the problem in China
economy. But most of the Federal
Reserve postpones increase
rates, citing the fact that this step
It prevents the growth of inflation to the target
levels. But whether it is necessary to navigate
at this rate?

Economics professor
Gita Gopinat of Harvard University,
for example, it is assured that low inflation
– not a reason to constantly maintain low
rates. Recall that at the September
Fed meeting recognized the fact that
world economic situation affects
US and its monetary policy. A
rate increase had been agreed
again postponed due to the fear that
strengthening of the dollar could lead to
decline in import prices, which in its
turn, will reduce the probability of reaching
target level of inflation of 2%.

In fact, the fluctuations
exchange rates may well have
impact on inflation in other countries,
but the change of the dollar rarely
affected the prices in the US – at
least it was not so much and
not for long. Here, of course, it helps a lot
the dominant role of the US dollar
in international trade – often a dollar
often used to establish
prices and, in addition, it is very often
a unit of account in the debt contracts,
and even between the borrower and the lender
who are not American
legal or natural persons.

It turns out that the impact of
dollar fluctuations on import prices
United States – one of the lowest in the world. how
Generally, the conditions of international trade
contracts are revised often.
Many exporters are buying accessories
and raw materials, too, for dollars, so fluctuations
Courses little concern them. Finally,
exporters want to keep their share of
in the markets, so they are better preserved
prices in dollars than fall victim to sudden
changes in exchange rates.

According Gopinat,
even the small effect that
It has on the inflation shock of shocks
import prices, speed – literally
two blocks. Here, for example, a sharp
strengthening of the dollar by 10% can reduce the
Import price inflation at 4.4% for
the next 2-3 quarters, but then it
impact on inflation will be very
insignificant. If you look at the costs
consumers, the strengthening of the dollar to
10% would reduce inflation (by
method of calculating the consumer price index
– CPI) up to 0.5% in the first two quarters,
because the retail trade in the United States
fully passed on to consumers
any change in import prices. By
the fact of retailers are likely to
simply increase their margins by reducing
This changes the scale of the transfer cost of goods to consumers.

But at the same time increasing
the vulnerability of other countries due to vibrations
currency exchange rates, particularly scared
developing economies. here, these
vibrations are transferred to the price of imports,
denominated in national currencies,
and changes may be up to 100%. Eventually
currency fluctuations impact on
inflation in most countries of the world will
3-4 times more than in the US. For example,
devaluation lira 10% lead
to the CPI growth in the country at 1.6-2% within two
years.

At the moment, hardly
Whether the dominant role may change
the US dollar as the world’s
settlement currency, because everything is already
accustomed to that currency. The euro, of course,
I could become a competitor in this regard,
given the high volume of trade
between the countries of the eurozone, but in fact for
Outside Europe, the currency used
rarely.

focusing on
inflation and the strength of the dollar, the Fed
may postpone the decision for a long time
Bet. Some world events and
the truth may push inflation down to
example, low commodity prices and the slowdown
Economic growth in developing
countries. But in fact strengthening of the dollar
It does not lead to a significant reduction in
inflation and the professor is proven.
Therefore, even a strong dollar – it’s not
a good reason to postpone
normalization of interest rates in the United States.

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