Sloan Sessions: The Fed and the dollar

Scott Jagow Feb 5, 2007
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Sloan Sessions: The Fed and the dollar

Scott Jagow Feb 5, 2007
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TEXT OF INTERVIEW

SCOTT JAGOW: The main reason Wall Street had such a strong performance was word from the Fed. It hinted that interest rates will probably stay put for a while. Newsweek’s Allan Sloan believes one of the Fed’s hidden agendas is protecting the dollar.

ALLAN SLOAN: Every time you hear that the Fed may lower short-term rates, which of course hasn’t happened, you see the dollar weakening. I think there’s huge pressure on the Fed to keep short-term interest rates up in the U.S. to support the currency to help cover the trade and in some cases the federal budget deficit.

JAGOW: Who’s putting pressure on the Fed to prop up the dollar?

SLOAN: The world is. If you look at what’s going on in the world and you see how much our merchandise deficit is and how much money we’re borrowing from overseas, you could see, if you were the Fed, you’d really care about the dollar.

JAGOW: Allan, what’s the argument for letting the dollar weaken a little bit?

SLOAN: The theory is that if the dollar weakens, imports into the U.S. would become more expensive in terms of dollars, so we might have less of them, and exports to the rest of the world in terms of dollars would be cheaper, so we might export more. The trade deficit we have would narrow as a result of the dollar declining.

JAGOW: OK, lower trade deficit, more exports, that sounds like a good thing.

SLOAN: Well it would be a good thing, except if you lower short-term interest rates in the United States, the dollar would weaken. You don’t want to set of a stampede where everybody and his brother and sister and hedge fund is trying to get out of the dollar.

JAGOW: So you think the fed is doing the right thing here by propping up the dollar?

SLOAN: I think it’s the right thing. They don’t admit they’re doing this by the way, Scott, because even under the new administration with Mr. Bernanke where they speak a language approaching English, as opposed to Alan Greenspan who had his own unique form of the language, you know, they don’t speak like you and I speak. You still wanna keep some mystery about what you’re doing, because you don’t want traders to front-run the U.S. government. That would be a bad thing I think.

JAGOW: Allan Sloan, the Wall Street editor for Newsweek Magazine.

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