Cited: Reuters/AP
On February 20, Cleveland Federal Reserve Bank Pres. Sandra Pianalto stated that there were too many variables that affect the value of the dollar to predict where it is headed.
Taking questions after addressing a group of high school students, Pianalto, a voting member of the Fed’s policy panel this year, was asked what policies were being put in place to safeguard the dollar’s value.
Pianalto noted that dollar policy was not under the purview of the Federal Reserve, but added: “The value of the dollar is set by the markets and there are so many variables. It is just very hard to know what direction it is going to go.” U.S. dollar policy is directed by the Treasury Department.
Asked about the Fed’s decision to increase the interest rate it charges banks for emergency loans, Pianalto described it as response to improving market conditions.
“As the credit situation improved and the financial markets improved … we tried to get it so the banks would access those funds in the market,” she said.
The Fed said on February 18 it was raising the so-called discount rate by a quarter point to 0.75% percent.
It made no move in the federal funds rate governing overnight lending between banks, which can broadly influence credit costs and has been the Fed’s main monetary policy tool. That rate still stands in a zero to 0.25% range.
Pianalto did not address the outlook for the economy or monetary policy in her remarks, and largely sidestepped questions on fiscal policy, which she said was not the Fed’s domain.
“It is important to step back and come out of this recession with recovery and to make sure that the correct fiscal policy is created,” she said.
The Obama administration has forecast a record $1.56 trillion budget deficit this year. At 10.6% of GDP, it would be the largest deficit since 1945.
The dollar extended its rise February 19, a day after the Federal Reserve bumped up the rate that banks must pay for emergency loans. Analysts said the rate hike was a sign of the central bank’s confidence in the financial sector. The euro briefly slid below $1.35 for the first time in nine months before paring its losses in New York.
The euro traded as high as $1.51 in November, but worries over big deficits in Greece and other European countries has undermined the stability of the currency used by 16 countries.
The euro fetched $1.3599 by late New York trading February 19, down from $1.3617 late February 18, before 
the Fed announcement. It broke below $1.35 in Asian trading overnight, bottoming at $1.3444, and its lowest point since May 2009.
The Fed said it was normalizing emergency liquidity measures, not trying to raise borrowing costs for companies and consumers. The central bank stood by its pledge to keep interest rates at their current range of near zero for an “extended period.”
A higher interest rate, or the expectation of higher rates, can prompt a shift of funds to the dollar. Analysts noted that many investors were taking the Fed’s move as a signal that it would hike rates faster than other central banks.
But the Fed’s move late on February 18, lifting the discount rate by one-quarter point to 0.75%, is unlikely to mean higher interest rates since the economy remains weak. Instead, it suggests that the Fed thinks the American financial sector is on the mend, said Brian Dolan, chief currency strategist at Forex.com.
“We’re past the crisis,” Dolan said.
There was little evidence that the Fed would feel immediate pressure to raise rates that would affect American shoppers and businesses. On Friday, the government said consumer prices rose a scant 0.2% last month, while core inflation that excludes food and energy dropped 0.1%. That hasn’t happened since December 1982, and gives the Fed room to leave rates very low for now. Raising interest rates is a tool in fighting inflation.
In other trading February 19, the British pound tumbled to $1.5464 from $1.5627 late on February 18 after falling to a nine-month low of $1.5350 earlier. Meanwhile, the dollar rose to 91.71 Japanese yen from 91.34 yen.
Against those nations that export commodities to the United States, the dollar was higher. As the price of crude and other commodities fell off, yesterday and Canadian dollars fell as the dollar rose versus the Nordic currencies and many Asian currencies.
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My Take: I just wish the dollar would go for it does. I don’t know about where the dollar is going down or up, but I do know that prices are going up. In fact, some stores are actually thinking about charging you for plastic bags that you use the store. You know the bags I mean, the imprinted bags that you put your groceries in and have the store emblem on them. It’s not like their wholesale plastic bags or anything. What I would like to know is how are they going to charge you for them because they don’t know how many you’re going to use at any given time.
I can see the prices going up every month. I use natural skin care products and I can see a difference in the price every month. I would love to be able to use natural aromatherapy that they have out, but I can’t afford. I expect things like new and used copy machines to go up in price because technology is getting better and costs more. But some prices should actually go down because people are buying more. Of course some electronics actually do go down in price like to Canon color ImageRunner, it’s at least $100 cheaper than it used to be.
Okay, I will stop b–ching about the cost of everything. As for what was stated in the article, I believe that the dollar will survive. It has in the past and it will in the future. We have to believe in our country to keep it going.
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