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Lower rate means cheaper dollar

John Dimsdale Mar 18, 2008


Doug Krizner: The Fed’s committee on interest rates meets today. Wanna guess what they’ll do? We’ve got an economy’s that’s probably in recession, a financial system that’s beyond stress. Many in the markets expect to see the Fed cut by a full percentage point. This would be the biggest rate cut in a generation.

Whether it’ll help the situation may be debatable, but one thing seems certain: lower rates will cheapen the value of the dollar. John Dimsdale has more.

John Dimsdale: Lower interest rates discourage foreigners from investing in the United States, says Kathy Lien at Dailyfx.com.

Kathy Lien: The further the Federal Reserve cuts interest rates, the lower the U.S. dollar will fall.

The falling dollar is giving European exporters fits, since they can’t compete against cheap American products. Some economists wonder if the European Central Bank, which has yet to lower interest rates, might do so now.

Alan Blinder: I don’t anticipate it, but I’m wishing for it and rooting for it.

Former Fed vice chairman Alan Blinder says its time the Federal Reserve got some international help.

Blinder: The Fed is sort of standing alone trying to stem a worldwide financial crisis. It’s not just a U.S. problem, and it would make the Fed’s job less difficult if we could get some rate cuts out of Europe.

But Europe’s stronger economy means lower interest rates there could spark inflation. And that’s why Blinder doesn’t expect any coordinated transatlantic rate cuts in the near future.

In Washington, I’m John Dimsdale for Marketplace.

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