The CPI index, it vividly shows how the value of the dollar has steadily dwindled over the last ten years.
As Bloomberg News' Joe Wiesenthal tells us, straightening this line — or at least slowing its downward spiral — is the Fed’s real goal.
Although the U.S. Dollar Index has been inching higher and higher — over the past year, it's risen almost 11%, from 91.05 to its closing today at 100.8 — it's actually been weakening at the fastest pace since the 1980s.
By Dave Allen for Discount Gold & Silver
The CPI index, it vividly shows how the value of the dollar has steadily dwindled over the last ten years.
As Bloomberg News' Joe Wiesenthal tells us, straightening this line — or at least slowing its downward spiral — is the Fed’s real goal.
Although the U.S. Dollar Index has been inching higher and higher — over the past year, it's risen almost 11%, from 91.05 to its closing today at 100.8 — it's actually been weakening at the fastest pace since the 1980s.
Look at what the Fed's done over the last seven years.
It's hiked its benchmark Fed Funds rate 225 basis points (2.25 percentage points), then cut them back to near zero where they stayed for _ years.
It's ended asset purchases, then restarted them and almost doubled its balance sheet to about $9 trillion in the process. And now, it's gonna end them once again.
On the surface, the dollar has seemed surprisingly resilient to Fed actions. However,
Wiesenthal says that's taking a mechanical approach to Fed policy.
He wisely points out that when viewing the dollar index, we're comparing one fiat currency (in this case, the U.S. dollar) to its foreign peers (e.g., the yen, yuan, euro, etc.).
The dollar looks strong vs. its counterparts, but Wiesenthal argues that there's "a hint of 'best horse in the glue factory' about this."
The Only Measure That Matters
That is, the measure of strength that matters for most dollar-munching consumers isn't how many euros or pesos they can buy, but how many goods and services their cash can purchase.
Or, as Weisenthal says, "It is the dollar exchange rate against stuff (emphasis added) that matters." Say, that's called inflation, isn't it?
And inflation drives the purchasing power of the dollar (and other fiat currencies) down.
In fact, Americans' purchasing power has fallen 98% since the Fed was created— to preserve it — over 100 years ago.
Later this week, Fed Chair Jerome Powell is expected to confirm that the nation is in for a turbocharged monetary policy tightening.
The proof in that pudding will come the first week of May, when the Fed will almost certainly raise the Fed Funds rate by another 50 basis points and embark on its balance sheet reduction.
Currency and other markets have already begun to price in that action; however, the only thing that really matters from here right now is whether the Fed can end the crash in the dollar vs. the prices of everything.
I hate to say it, but I'm siding with prices until the data tell us otherwise.