Outside of talking about the economy, the improved financial conditions with still “significant” challenges remaining and the labor market, he actually talks about the US$ in his discussion about inflation. He concludes that “inflation seems likely to remain subdued for some time,” the same wording we saw in the last FOMC statement but today he is actually talking about the rise in commodity prices, “likely reflecting the pickup in global activity… and the recent depreciation of the dollar.” He also said “we are attentive to the implications of changes in the value of the dollar and will continue to formulate policy to guard against risks to our dual mandate.” He believes their commitment to their dual mandate “will help ensure that the dollar is strong and a source of global financial stability.”
This is the first time I have heard Ben talk about the US$ in these terms. Whether its comments from the Chinese and other global economies that compete with them or finally an acknowledgement that a weak US$ may actually be a factor in inflation, Bernanke finally is doing what any self respecting central banker does, admit that the weakness of the reserve currency of the world matters. Jawboning is one thing, but until the world sees actual action, the US$ will remain in secular decline but today’s comments may be enough to halt its current fall for now. Money will go where its best treated and monetary and fiscal policy in the US is not currently treating the US$ well (an understatement I know) relative to other countries.