Growth is weakening everywhere, but most in US. The dollar fell to a record low against the euro and the weakest in almost three years versus the yen.
Fed will be forced to keep rates low until at least the second half of 2009 to prevent systemic collapse of the financial system. However, because of high inflation it is going to be difficult for the Fed to cut rates below 2%.
Forced saving and high inflation in the US will hurt consumption growth. Additionally, deteriorating employment will have the same negative impact on the consumption growth.
It would be possible to avoid recession for the first half of 2008, if support export growth was big enough. Merrill Lynch analysts wrote in a research note today that, “The Fed is breaking new ground in expressing indifference to the U.S. dollar’s decline”. But other believe, that there is just no other way to go about it…
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2 Comments
^^Angel^^
March 6, 2008Well, all that does sound agonizing. But I am still wondering how come the United States Department of the Treasury resists on Europe's urges to back up the poor, sliping dollar? Isn't it because a cheaper dollar suits them right in exporting, which will eventually aid the stabilization of their economy?
The What Girl
March 6, 2008You are right to say that the humbled greenback will boost exports. Moreover, it will create more jobs, however further down the road, if the slide is not reversed, the entire world will feel the pain. I will go through the Pros and Cons of a weak dollar at a later post. Thanks