The U.S. dollar has gained more than 1% today, bringing its cumulative gains since July to about 10%, based on the Federal Reserve's trade-weighted dollar index. The gain is akin to roughly a percentage point in interest-rate hikes, research from the Federal Reserve suggests. The dollar rally can therefore be looked at as giving further backing to the idea of an interest-rate cut.
The dollar's rally is just one area in which the transmission effects of monetary policy is failing. The others are obvious: equities prices, credit spreads, and bank lending standards. Each has moved in ways that are detrimental to the economic outlook, which could be offset and possibly reversed a bit by a further cut in interest rates.
Of course, the dollar's rally has been accompanied by significant benefits; chiefly, the massive decline that has occurred in commodities prices, which will have enormous benefits to the economy. This is why any Fed rate cuts would be best if kept minimal in order to preserve the strides made against inflation, which until recently was a virulent problem.
P.S. Will you be there when Cramer makes his next move?
Strong brands and companies with vast market exposure can help bolster your portfolio. Jim was able to lock in a 64% gain by buying Ingersoll-Rand at $13 and selling at $22.50. Action Alerts PLUS members were the first to see these moves. Were you among them? Get Free Access Today!
Tony Crescenzi Blog CP Plunge: No Outlet 10/2/2008 1:37 PM EDT Commercial-paper issuers are finding it difficult to raise capital.
Tony Crescenzi Blog Scary Drop in Commercial Paper 10/2/2008 11:00 AM EDT The record decline reflects the seizing up of the credit markets.
Tony Crescenzi Blog Jobless Claims Climb Higher 10/2/2008 9:45 AM EDT Outside of two spikes, the data are at their highest since 1991.
Tony Crescenzi is the chief bond market strategist at Miller Tabak + Co., LLC, and advises many of the nation's top institutional investors on issues related to the bond market, the economy and other macro-related issues. At the request of the Federal Reserve, Crescenzi is a regular participant in the board's Livingston Survey of economic forecasters. He is also the author of the revised investment classic, The Money Market,
first published in 1978 by Marcia Stigum, and The Strategic Bond Investor. At the time of publication, Crescenzi or Miller Tabak had no positions in the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Crescenzi also is the founder of Bondtalk.com, a popular Web site covering the bond market and the economy. Crescenzi appreciates your feedback; click here to send him an email.
TheStreet.com has a revenue-sharing relationship with Trader's Library under which it receives a portion of the revenue from purchases by customers directed there from TheStreet.com.
RSS FEEDS
PODCASTS
