Skip to main content

The Economy in Perspective

(PDF PDF icon)

Appreciating the dollar … The U.S. dollar has been in the news often lately, and some financial journalists have announced that it is finally getting its comeuppance. After all, they have considered the dollar overvalued for some time and have scratched their heads over its apparent ability to defy gravity. They have declared that the dollar had nowhere to go but down because the United States has been living beyond its means. Undeniably, the United States has run a current account deficit for the better part of 20 years; most recently, that deficit has grown very large. Arriving at this point has required foreigners to invest their excess savings in dollar-denominated assets, whether in the form of land, corporate stock, or U.S. Treasury securities, and to do so at an increasing rate. Although many analysts have concluded that dollar depreciation must be part of adjusting to a new equilibrium, they differ widely over the magnitude, timing, and currency pairs associated with any movement in the dollar. Experience shows that exchange rate changes cannot be forecast with much accuracy.

Suggested citation: "The Economy in Perspective," Federal Reserve Bank of Cleveland, Economic Trends, no. 04-12, pp. 01, 12.01.2004.

Upcoming EventsSEE ALL