...And Now for Weak Dollar Policy

I am somewhat surprised that regional Fed presidents would go against the grain in not objecting to a characterization of the US following anything but a strong dollar policy, but here it is. Dallas Federal Reserve President Richard Fisher didn't go into the rigmarole of stating that the US had such a policy. Nor did the Philly Fed President Richard Plosser.

However, we begin with last Monday when the foreign exchange markets were somewhat surprised that the Fed chairman mentioned the dollar's value when it's traditionally been the Treasury secretary's role to do so. Here was Bernanke addressing the Economic Club of New York:

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 to foster both maximum employment and price stability. Our commitment to our dual objectives, together with the underlying strengths of the U.S. economy, will help ensure that the dollar is strong and a source of global financial stability.

In any event, the statement was greeted with a yawn as Bernanke didn't mention any intention of raising interest rates to support the godforsaken and wretched greenback. Today, however, we get news of Dallas Fed President Richard Fisher and his Philly counterpart Richard Plosser confirming what is evident to practically all:

Federal Reserve officials on Thursday downplayed the consequences of the falling U.S. dollar, underscoring that deflation is still a threat, especially with commercial real estate prices falling. Dallas Fed President Richard Fisher said in an interview with Market News International that the weakening dollar, which hit a 15-month low against major currencies on Monday, is only one of the factors the Fed watches when setting policy.

"You pay attention to this," Fisher said in reply to a question about the effects of a weaker dollar. "On the other hand, in terms of its inflationary input, unless it becomes disorderly, a depreciating dollar -- a gradually depreciating dollar -- doesn't necessarily add an enormous inflation impulse." Fisher will become a voting member of the Fed's policy-setting committee in 2011...

Philadelphia Fed President Charles Plosser, answering journalists' questions after a speech in Singapore, was also not worried about dollar weakness. "There's no particular reason you wouldn't expect the dollar to go back to where it was before the panic set in -- that is essentially all it has done at this point. I don't view that as anything particularly of concern," he said. Plosser will also in 2011 become a voting member...

In the MNSI interview, Fisher acknowledged there are what he called "trade-offs" between the Fed's policy of keeping interest rates very low for an extended period and a strong dollar [my emphasis].

Such refreshing candor. Maybe the Yanks can be more honest about going from "benign neglect" to "abject molestation" of the dollar. Now, if only we could get B-B-B-Bennie of the Feds and Tim "Deficits Still Don't Matter" Geithner to sing from the same hymn sheet. You can say I'm a dreamer, but I'm not the only one.