Strong U.S. Dollar Expected To Challenge Earnings, Monetary Policy

VOLU.S. stock futures are slightly higher on Monday ahead of corporate earnings season which kicks off this week.

Last week proved to be a disappointing and volatile week for U.S. stock markets after investors digested slowing international growth alongside a rebounding U.S. dollar that could dent future corporate earning results and slow the U.S. economic recovery.

The U.S. dollar climbed to a 4 year high on October 3rd after a strong employment report was posted for September showing 248,000 new jobs added to the economy and the unemployment rate plunging to 5.9 percent.

The stronger than expected September employment report falls in line with the overall positive trend for employment in 2014 and gives Federal Reserve Committee members less slack to justify a later start date for hiking interest rates in 2015.

But with inflation rising modestly and a strong dollar pressuring U.S. exports on the international market, some Fed Committee members such as Federal Reserve Bank of Chicago President Charles Evans are concerned that a resurgent U.S. dollar may continue to slow inflation.

On Saturday during a conference Charles Evans shared his concerns about a strong U.S. dollar on the U.S. economy.

“The dollar, it puts downward pressure on our inflation,” Evans said while voicing concern about a reduction in exports and absorbing the low inflation rates of America’s trading partners.

Although several Fed Reserve Committee members support hiking interest rates in mid-2015, Charles Evans takes a different approach and believes that the benchmark interest rate should not move higher until the first quarter of 2016.

Normalizing Monetary Policy

On Saturday Fed Reserve Vice Chair Stanley Fischer spoke about the normalization of monetary policy during the 2014 Annual Meetings of the International Monetary Fund and the World Bank Group, Washington, D.C.

Fischer admitted that the Federal Reserve will consider the global impact from its decision to raise interest rates and return to a period of normalization.

“The cumulative effects over half of a decade of the extraordinary actions by the Federal Reserve and other central banks will need to be unwound in the coming years, as progress toward economic recovery makes it necessary to withdraw our substantial monetary accommodation. In the normalizing of its policy, just as when loosening policy, the Federal Reserve will take account of how its actions affect the global economy” Fischer said.

-Johnathan Schweitzer


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