Dollar gains focus
The value of the dollar is becoming a larger focus of the Federal Reserve. The recent rate cuts in early 2008 have had a significant role in escalating the dollars slide. The Fed has no direct ability to improve the dollars value against other foreign currencies, but they are accutely aware that the recent cuts have diminshed the value to an all time low agains the Euro.
The slide of the dollar has a number of key issues. The recent run up of oil prices is said to be linked to the value of the dollar declining, thus having a greater impact on oil and gas prices as these are global commodities. This past year has seen the conversion of one dollar to one euro fall to a record low of 62 cents per Euro, before recently climbing to 64 cents. This decrease is certain to have an impact on Americans traveling abroad as well as U.S. firms who have global operations.
The Fed will be closely watching the upcoming economic data including the job markets as welll as inflationary data to determine how soon they may actually begin raising interest rates. If the market sense some slight improvements, it would not be unquestionable to believe the Fed could start raising the Fed Funds rate as soon as the early fall, even if the U.S. real estate market has not fully recovered.
Bernanke catches up with rest of country
The U.S. economy has been a disaster for the better part of the past six months. If you listened to speeches by Ben Bernanke during that period you would have never heard the acknowledgement that the U.S. economy is in a recession.
This finally happend today! The Fed has cut the Fed Funds rate a full two pecent since the beginning of the year. Congress has issued rebate checks in the amount of one hundred and fifty billion dollars, but there has never been an acknowledngement that the U.S. economy was in a recession. The fact that the economy lost jobs in the month of February and one of the largest investment banks in the world Bear Stearns was facing near bankrupcy was a sure sign that things were not well on wall street. U.S. home values have decreased by over 10% over the past twelve months.
Bernanke’s testimony is curious as the stock market staged one of the largest rallies in U.S. history rising by almost 400 pts to start the second quarter of trading. Many investors believe that the worst of the credit crisis is now over and the U.S. economy, while certainly in a period of recession should begin to show signs of life by the third or fourth quarter of this year. The Fed chairman has been active in working to bring the economy out of it’s down turn, no matter how he wanted to phrase this in the past.