The American Economy, Federal Reserve Policy and the Dollar in the New Year

Summary

On recent evidence the U.S. economy is the healthiest in the industrial world. Janet Yellen and the Fed board have to be pleased with the results of their prolonged quantitative easing policy and may even have breathed a sigh of relief when the stock market did not crash as QE ended, as had been predicted by many. The stark rise of the dollar since mid-summer is as much the result of the positive American economic background as of the evident desire of the ECB and the Bank of Japan to devalue their currencies in lieu of effective rate policy at the zero boundary. There is a complacent market assumption that the strength of the U.S. economy will enable the Fed to raise the Fed Funds rate in the first half of next year, propelling the dollar ever higher. Is the U.S. economy so buoyant that it can withstand the slowdown and stagnation in the rest of the global economy? What is the evidence? We will examine the current set of economic assumptions, their reflection in Fed policy, and consider some alternative scenarios. Please join us with your opinions, comments and questions.