Bank of America: Fed has little incentive to weaken dollar
Analysts at Bank of America Merrill Lynch claim that as the correlation between import prices and US dollar’s rate seems to be low, the Federal Reserve has little incentive to weaken the greenback in order to encourage inflation increasing competitiveness of the national exports or making its debt easier to repay.
The trade-weighted dollar index lost 5.8% during the past year. It happened due to the Fed’s loose monetary policy of extremely low interest rates.
At the same time, import prices excluding automobiles didn’t change much during this period gaining in February only 1.4% after rising by 1.3% in January.
According to Bank of America, 10% decline of US currency is equal to the percentage-point increase in inflation. Consumer prices excluding food and energy showed in February 1.1% annual advance. As a result, it’s possible to say that the link from a weaker currency to higher prices for consumer goods has still been fairly weak.