Steve Forbes, editor-in-chief of Forbes Media, predicts that while the Federal Reserve will probably raise rates in September, the nation’s central-banking officials really don’t know what they’re doing.
“I think it's very important to get real prices in the credit markets again, so the longer they delay, the more that uncertainty is out there. The more that hurts investment, especially for small and new businesses,” he told CNBC.
Fed policy makers have voiced concern about the strong dollar's drag on exports, both in Federal Open Market Committee minutes and in speeches. It's a major point of concern for monetary policy-watchers as Fed officials debate when to go ahead with the first interest rate increase since 2006.
“The quicker they do it, the better. If they let this go on until December, that will be another drag [on economic growth]. People will be reading tea leaves, holding back, wondering what they do. Get it over with, done, do it,” he said.
“The dollar is strong. The Fed didn't mean for that to happen. Which means they don't know what they're doing,” he said.
The dollar has risen roughly 14 percent in the past year compared with overseas currencies. A stronger currency hurts company earnings because U.S. exports become less competitive with goods produced abroad, and if corporations haven't hedged overseas profits, they translate into fewer dollars.
“One of the reasons that the dollar the strong is you can't lend anymore. Banks, small banks, especially, are getting crushed by Dodd-Frank [regulations] and the big banks are always told, ‘Get ready for a new round of fines.’”
The strong dollar is hurting a slew of American companies with operations abroad, which negatively impacts U.S. trade.
But higher interest rates typically lead to a stronger dollar as investors buy the greenback to purchase U.S. debt.
The Federal Reserve is expected to raise its key interest rate next month for the first time in almost a decade. The move would signal that the U.S. economy is healthy. Most experts expect a Fed rate hike in less than six weeks, on September 17. But there are contrarians out there. Among them, Goldmans Sachs announced in June that it believes the Fed won't raise rates until December.
Other financial experts also have expressed exasperation with the central bank’s rate strategy.
The "inordinate strength" of the U.S. dollar is the only thing that will keep the Fed from further tightening further once it raises interest rates, analyst Dennis Gartman said.
"The Fed is very concerned about the strengthening of the U.S. dollar. I don't think they're going to be able to stop the strengthening of the U.S. dollar," the publisher of the "Gartman Letter" told CNBC.
After the Fed's initial raise, he said, the strong dollar is "the only thing that will keep the Fed from tightening in the near future."
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