OK, the background is zero interest rates in the US combined with Quantitative Easing, making the USD basically free to borrow and, in terms of lost opportunity cost, quite expensive to hold as cash. Result, a fall in the value of the USD against other currencies (mostly). So far, so obvious.
This post is about the management of that fall in value. My contention is that while a falling USD is not much of a concern for the Fed and US Treasury, (in fact it is a positive, though that is not being said) - again, I think all this is pretty obvious (I don't not have a Nobel Prize in Economics for nothing) - what would be a concern is a rapid fall in the value of the USD; a rapid fall could well shake confidence in US markets (selling of US equities and Treasuries etc.).
So, how is the USD fall being managed?
Really, really well, IMHO.
The most recent statement from the FOMC said rates were to be on hold for an 'extended period of time'. Basically, a green light for continuing to sell the USD.
But, look what is happening when the USD starts to slide.
Tuesday the head of the Philadelphia Fed gave a speech which was reported as saying he is calling for an interest rate hike, for example:
Fed's Plosser calls for higher interest rates
Wednesday the head of the Richmond Fed, Jeff Lacker, gave a speech which was reported in a similar manner:
Richmond Fed's Jeff Lacker who joins the chorus demanding an end to Bernanke's insane monetary policy of drowning the market with unprecedented liquidity
It looks to me like there are two alternative explanations:
1. These speeches are Fed regional heads simply speaking their mind;
2. These speeches are Fed regional heads speaking their mind, but being actively encouraged to do so because such statements lend support to the US dollar (short-covering is generally induced when statements such as the above are reported).
I think the main implication of 2 is that the (unstated) policy of allowing the USD to fall is going to stay in place for some time to come and management of the fall will continue.
Oh, there are 2 other alternatives:
1. I am talking my book;
2. I have simply misplaced my tinfoil hat and will feel much better when I find it.
Any thoughts on this?