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Comment by lvl102 | Hacker News Reader

I find it ridiculous that the strong USD, which is the main cause of pending global financial crisis, was directly brought on by Federal Reserve’s head in the sand moments: (1) not raising rates or even stopping QE prematurely when inflation was flashing bright neon red, then (2) ignoring all the data points to overcompensate for its gross negligence in (1). UK is not isolated here. We are on the cusp of an avalanche across developing countries and EU.

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As far as I understand, weakening the USD for the benefit of parties foreign is not part of the federal reserve's mandate. Maybe it should be but it isn't. I'm also not sure how continuing with inflationary policy could strengthen the USD. Surely any delay in raising rates should weaken it relatively speaking?

Also, it is natural for the USD to appreciate given the energy crisis and knock on effects from that, isn't it?

Why natural? Is it some effect of the "petro-dollar" thing?

U.S sells a lot of oil and gas and as it happens Europe needs both. A lot of capital is fleeing from Europe and other risky markets(China) to safe havens( the U.S). All this in addition to the fed rate cuts.

Did you mean rate hikes? Isn't US Fed raising?

Rate hikes indeed

The problem is really that they are doing it extremely fast while ignoring the very financial plumbing they made everyone around the world rely on for two decades. It’s quite shortsighted to keep USD at extremes to soften inflationary pressures in the US while letting the RoW and developing countries burn. It’s 2022 and everything is connected. There’s no such thing as a decoupled economy.

Biden forked Russia out of Swift system, so the world is splitting (Russia, China, Iran).

so you are saying we should sit through 15, 20% inflation for the sake of other countries? that's not the fed's mandate and you will never, ever get domestic support for that. nor should you tbh, we should not suffer for the sake of everyone else. we don't want the dollar quite this strong but it's better than the alterantive.

regardless it's not all our choice. people will keep fleeing to the dollar for stability and that will strengthen it relative to other currencies. believe me this is not all fed policy or even mostly fed policy, we still have a lot of inflation so domestic winds aren't making it that strong. this is a "relative basis" thing. besides, what do you think the RoW impact would be if there was no safe currency to flee to?

and lastly petrodollar go brrrrr, energy crunch means we will have a strong dollar like it or not.

Are you positing that had the Fed raised rates earlier that the dollar wouldn’t have strengthened?

The US dollar strengthens when (1) the world goes into downturn, and/or (2) when US interest rates rise.

In what scenario would the US dollar not have strengthened? It was inevitable regardless of what the Fed does because of the greenback’s dominance in world reserves and trade. It’s a currency of last resort in times of busts and booms. The dollar smiles.

I am saying that if they cut the bullsh_t back in March 2021, when all the excesses from crypto, meme stocks and SPACs were blatant, we would not be here today. They made a very public choice to let that play out. Heck, even China was hitting the breaks at that point. A 200-250 hike cycle would have more than sufficed. This is gross negligence. The worst monetary policy decision that they are now compounding.

I’m not sure what world you were living through in March 2021, but no one was cutting back fiscally at that point. Had you forgotten the US then passed ARP in 3/2021?

The Fed’s only instruments are interest rate and signaling, QE is controlling long tail of the curve. You wanted the Fed to raise rates at the same time when fiscal policy added another $2T in spending?

The more logical argument is perhaps the US shouldn’t have passed ARP and poured gas on the fire.

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