INSUBCONTINENT EXCLUSIVE:
A strong dollar is likely to weigh negatively on the US economic outlook and could alter how high the Federal Reserve ultimately raises
interest rates, economists surveyed by Bloomberg said.
Nearly half of the economists said that international fallout from a strong dollar
was either somewhat likely or very likely to spill back to the US over the next 18 months and affect monetary policy
Just 28% saw the currency strength as unlikely to have any impact.
The dollar has risen about 13% this year against other major currencies
The survey of 40 economists was conducted Oct
21-26.
Officials are expected to continue their campaign with another 75 basis-point increase on Wednesday
Their last forecast showed rates reaching 4.4% by year end from a current target range of 3% to 3.25%, and nudging to 4.6% in 2023.
Chair
Jerome Powell and his colleagues are trying to cool the economy and ease price pressures by deliberately tightening US financial conditions,
of which the value of the dollar is an important component
A stronger dollar tends to dampen inflation by reducing the costs of imports and lowering domestic production as it raises export
But that effect has been curiously absent so far, even as we are already about five quarters into the appreciation process
One possible explanation is that US is increasing its exports in energy products
The fact that this tightening channel of dollar is absent means that the dollar appreciation is less contractionary to the economy than
In the survey, 44% said they believed the Fed could fully complete its aggressive rate tightening despite possible stresses
But 38% said the policy makers would be forced to cut rates earlier than expected and 18% said the Fed would not be able to raise rates as
founder of MacroPolicy Perspectives LLC.
Survey respondents expect rates to peak at 5% early next year and a majority of the economists now
expect a US and global recession.
A number of prominent economists, including Nouriel Roubini, have warned that troubles in financial
markets could cause the Fed as well as other central banks to backtrack from fighting inflation
said.
Financial stresses were most recently evident in the UK where the Bank of England had to step in to support markets, and Liz Truss
resigned as prime minister after only 44 days in office amid a backlash over her low-tax economic plan which shook investor confidence.
Two
thirds of economists said the British market turmoil resulted very largely or exclusively from UK policies as opposed to Fed tightening and
the stronger dollar.
The Fed is sometimes referred to as the central bank to the world, reflecting the importance of the US in the global
In contrast, 22% said the Fed has responsibility only to the US economy and its domestic mandate of maximum employment and price stability.
