Fed, Focus! Beef Up That Dollar!

Doug Marshall
Market Assessment
Published June 19, 2008

The Federal Reserve, in continuing to focus on preventing recession and a greater economic downturn through interest rate-cutting, is now doing the American economy a disservice, according to Zaya Younan of Facts Matter.

Mr Younan, while applauding the aggressiveness with which the Fed has restrained the shadow of recession, points to the same rate-cutting done in the early months of 2008 as a primary reason for the current weak dollar and, not coincidentally, the rise in prices of commodities and inflation.

The U.S. dollar has taken a hard hit, dropping sharply to $1.5535 with the Euro (as of June 18, 2008), and will continue to fall unless the Fed takes off the rate brake and starts to increase them in an attempt to boost the battered greenback.

Until treasury rates come up and the dollar strengthens, Mr Younan sees inflation going further and creating the same recession that the Federal Reserve has sought so hard to avoid: consumer spending drops; commodities and gas prices jump; major corporations post deficit earnings; and economic growth goes negative.

While the Fed has announced that it will not be lowering rates further, it is imperative, says Mr Younan, that the Fed continue to play with and increase interest rates in an attempt to achieve equilibrium between diverting recession and dampening inflation.

Although we in commercial real estate wince at the prospect of higher interest rates it’s probably understood by all that such a move in this market will become more and more necessary. And the alternative (a devaluing of the dollar in relation to other currencies), at least according to Mr Younan, must be seen as even more unattractive.

Source:
Facts Matter by Zaya Younan, for GlobeSt.com, June 9, 2008