Can the Federal Reserve board reverse the trend of the falling dollar?

Question

I am not an economist so I dont know, but I hear on the news that the Federal Reserve Board isn't making it a priority to reverse the trend. If they really wanted to focus on making a stronger dollar would they be able to?

Answer 1

The Fed is really the only government agency that would be able to make the dollar appreciate vis-a-vis foreign currencies.
It would do this by raising interest rates, making it more attractive for investors to hold their investments in dollars, as higher interest rates pay larger returns to foreign or domestic lenders. Ie, the countries with the highest interest rates will have the most highly valued currencies.
Higher interest rates are sometimes necessary to reduce inflation; however they also contract the economy and can cause recession. The Fed could certainly stregthen the dollar if they wanted to; to do so may risk a recession.
A less highly valued dollar will also benefit our exports; lower interest rates help businesses, consumers, and the stock market but may, over time, cause inflation.
(The other postings discuss stuff that isn't really relevant to any sort of economic discussion.)

Answer 2

The cause of the falling dollar has more to do with Fiscal policy (controlled by congress and the pres) than Monetary Policy (controlled by the Federal Reserve).

The primary cause of the falling dollar is the huge budget and trade deficits. About half of the deficit is funded by foreign sources. So the more dollars that go overseas, the 'cheaper' they are worth. The best thing the U.S. can do for the dollar is to balance the budget.

The Fed *could* strengthen the dollar by contracting the money supply. But the economy is too fragile right now for that.

Answer 3

The fed can intervene in international currency markets to support the price of the dollar in the short term. Central banks do this all the time, and it was essential before the gold standard was abandon.
They could also increase US interest rates which would attract more foreign investment in US bonds, lower the US inflation rate, and probably cause a recession which would also reduce imports, All of these would shift the balance of payments so would increase the value of the dollar

Answer 4

I don't think so. And I don't think the fed has either the stomach to try or the ability to succeed.

FACT # 1: When Pres. "W" took office, it took 85 cents to buy 1 Euro. Now it's $1.47 to buy the same Euro.

FACT # 2: When Pres. "W" took office, he inherited the FIRST BUDGET SURPLUS since Pres. Eisenhower.

WHY?

Much of it is due to a $400 BILLION war (with a new request for >$100 Billion NOW and God knows how much later) that Bush and Rumsfeld said was going to cost < $100 Billion and would be largely paid for with Iraqi oil receipts. [Remember how we were going to be greeted as liberators??]

I'll skip the politics of this endless war (and all of the administration lies that got us there) and simply make the point that when you spend your $$$ for one thing, they are no longer left for anything else.

Not enough left to care for our vets. Not enough left to feed our own low income children. Not enough left to keep the promised of funding "No Child Left Behind". Not enough for highway & bridge repairs. And on and on and on and on ....

We ship our jobs overseas because it yields immediate cost savings to large businesses who pay lower overseas wages BUT WE FORGET that the laid off Americans can't afford to buy American-made goods so more Americans go from $15-to-$25/hour manufacturing jobs to service McJobs.

The Fed can adjust interest rates, but even this has side effects. Lowering the rate now to bring "liquidity" to the market, really means bailing out the banks that made this horrific loans that are putting millions of seduced home-buyers into mortgage foreclosure and out on the street. The lo9wer rate won't help- these folks, but IT WILL yield inflation that will result in more low and middle income people being squeezed to death.

So, dear friend, the real question is not whether adollar is "weak" or "strong" but whether government policies are making us a "weak nation" or a "strong nation."

Judging from this government's actions in the last 7 years, the answer is that we've been critically, if not mortally, wounded.

Answer 5

yes, all they have to do is raise interest rates. they refuse to do so because it might cause the banks a little trouble, and the banks are more important than the rest of america