The Strong Dollar Is Keeping America Down

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Ana Swanson writes today that China’s devaluation of the yuan is hardly unique. Everyone is devaluing these days:

Since hitting a low point in mid-2011, the U.S. dollar has risen by about a third against a basket of global currencies; in just the last year, it is up 20 percent. Patrick Chovanec, chief strategist at Silvercrest Asset Management, says the dollar’s strength already shaved around two percentage points off U.S. economic growth in the first quarter of this year.

The dollar is up against both the euro and the yen thanks to our relatively strong economy. “Relatively” is the key word here: the American economy may be doing better than a lot of others, but it’s still growing at the fairly unimpressive rate of 2-3 percent annually.

This highlights a problem for the next president that won’t be solved by bluster: there’s a limit to how much our economy can grow if the rest of the world is mired in a slump. This is one of the reasons the Fed should stay cautious about raising interest rates. It’s not just that the recovery remains fragile; the entire global economy remains fragile. This is not a good time for experiments just to appease inflation hawks.

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