Grep Ip: Read This Speech, Then Sell the Dollar: "
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Greg Ip at The Economist:
Read this speech, then sell the dollar, The Economist: Ben Bernanke's speech on Tuesday got all the attention, but the speech later that day by Bill Dudley, head of the New York Fed, is more intriguing. In it he analyses the macroeconomic origins of the global imbalances that precipitated the crisis and prescribes the policy path forward....
In a nutshell, Mr Dudley tells us that aggressively easy monetary policy is essential to both the cyclical recovery and to a structural rebalancing of the American economy away from consumption and toward exports. This process will go more smoothly for everyone if emerging market economies (EMEs) cooperate and let their exchange rates appreciate (i.e. let the dollar fall), but absent such cooperation, don’t expect the Fed to change course. ...
EMEs have complained loudly that easy American monetary policy has fueled destabilizing flows of capital into their economies, driving their currencies up and the dollar down. That, Mr Dudley (uncharacteristically for the Fed) admits “is at least possible” but then, in effect, tells them to deal with it...
Not surprisingly, Mr Dudley would like the EMEs and the rich world to cooperatively “move toward arrangements that put us on a mutually sustainable path”. This, obviously, means the EMEs allowing the dollar to fall further against their currencies. Mr Dudley does not, however, answer the question on everyone’s mind. Given the economy’s latest soft patch, is the Fed prepared to force the issue with more QE? ...
It may not matter. As William Pesek over at Bloomberg observes, Asian currencies are already reacting as if QE3 is on its way;... it is ... possible that Fed is getting its way with words, such as Mr Dudley’s speech, as much as with actions.
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