Several years of dollar weakness

The American Federal Reserve sets policy for the coming quarter

US financial markets are preparing for today's Federal Reserve meeting, at which the heads of the US Central Bank are expected to announce the future course of the country's monetary policy and the key interest rate. Last night they reacted very sharply to the words of former Fed Chairman Alan Greenspan, who said at a video conference of Israeli businessmen that he expected “several years” of dollar weakness , Reuters reports. After these words, the dollar, which had been growing all day against the euro, dropped from 1.3222 to 1.325 dollars per euro. The fall in the dollar exchange rate in recent weeks has become precipitous, primarily due to the diversification of gold and foreign exchange reserves by various countries. And when Mr. Greenspan supported this tactic yesterday, saying that “it would be imprudent to keep everything in one currency,” the dollar simply could not help but continue to fall. However, experts still see no reason to change the refinancing rate: “Taking everything into account, What's happened since the end of October, the signs of a continued economic slowdown and still high inflation... if I had to make a statement, I would say it's not going to change,” Mikey Levy, chief economist at Bank of America, said yesterday.

Now the financing rate is at the level of 5.25% per annum. Until this summer, Mr. Greenspan pursued a year-and-a-half policy of increasing it by 0.25 percentage points every quarter. Current Fed Chairman Ben Bernanke suspended the rate marathon and instilled in investors confidence that the current level of inflation may soon allow them to start a bearish game. Similar sentiments are shared by many economists today.

Rate growth remains the only reliable tool in the Fed's arsenal to combat inflation. However, its regular use seriously threatens economic growth, the rate of which has recently decreased markedly : in the second quarter it grew by 2.6%, and in the third - by 2.2%. Some economic indicators indicate that inflation risk in the US is now less dangerous than a slowing economy. "The Fed could start cutting rates if data on a slowdown in the housing and manufacturing markets leads to weaker performance in the services sector," Dean Mackie, a former Fed economist and now chief economist at Barclays Capital, told Reuters.

Next year, many experts believe, the Fed will have to think about easing monetary policy in favor of economic growth. “We are not confident that the Fed has any reason to keep monetary policy tight,” said Morgan Stanley economist Richard Berner, quoted by AFP. “The risk of further weakening of economic growth has increased, so there is no reason to continue to contain inflation.” A similar position is shared by TD Bank Financial Group analyst Mark Leviscue, who notes the decline in growth rates in industry and the housing market as significant signs of a slowdown in economic growth.

However, data published last Friday on an increase in the number of people employed in the economy by 0.2% in the third quarter (by 132 thousand people, and not by 110 thousand, as analysts believed) formed the confidence of some analysts that economic dynamics were not so bad. “Ben Bernanke must have been very pleased to see this data in the wake of his recent statements that the collapse of the housing market and the auto sector had little impact on the overall economy,” former Fed Chairman Lyle Gremley told Reuters. “This fully confirms Bernanke's optimism that the economy is not in danger of a recession.”

Thus, most likely, experts say, the Fed will weigh the pros and cons and will not change the rate.

Denis UVAROV