Tags: Money | Federal Reserve | dollar | value

How Does the Fed Affect the Dollar's Value?

By    |   Wednesday, 01 July 2015 11:29 PM

News from the Federal Reserve has a direct effect on the dollar's value, with policy decisions helping to stabilize prices, and in turn, protect the nation's purchasing power.

According to CNBC, the Fed's monetary policy keeps currency stable and safe as it also regulates the banking system.

The Fed keeps a balance on the nation's money stream by regulating interest rates and the amount of currency in circulation. It also enriches supply by purchasing government securities, creating a pathway to more consumer spending, thus juicing the economy, CNBC noted.

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If growth continues at a rate deemed too fast, spurring inflation, the Fed will announce an interest rate increase, causing lending to slow down.

In March, for example, the dollar hit highs against other world currencies as the Federal Open Market Committee met amid expectations that an interest rate increase was likely afoot, The Wall Street Journal reported. Those expectations of a rate hike sparked investments into U.S. assets, the Journal noted, and helped strengthen purchasing power abroad on foreign goods.

Some have made the case that maintaining current low interest rates keeps the dollar strong and have urged extra patience, Vox reported. It noted that the nation has not hit full employment, and with inflation manageable, the time is not yet right for the Fed to hit the gas on interest rates.

With the dollar's value rising, the Fed may hold off from moving interest rates from the near-zero level it's held onto. According to the Los Angeles Times, that could make the dollar even stronger because higher interest rates are a boon to foreign investors drawn to U.S. bonds. Their interest could serve to boost the dollar, igniting a trend that causes other speculative investors to jump in.

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News from the Federal Reserve has a direct effect on the dollar's value, with policy decisions helping to stabilize prices, and in turn, protect the nation's purchasing power.
Federal Reserve, dollar, value
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2015-29-01
Wednesday, 01 July 2015 11:29 PM
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