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Federal Reserve Board Chairman Jerome Powell speaks during a news conference on December 19, 2018 in Washington, DC. The US Federal Reserve raised the short-term interest rates by a quarter percentage point on Wednesday, the fourth increase of the year, and signaled two more hikes could come in 2019.
Still, “financial conditions remain supportive, and this may support growth going forward,” Mark Schofield, global head of macro product at Citi, said in a note. “The interplay between markets and the real economy is delicate and unstable at the moment. The Fed will be aware of this.”
There are risks to having a stronger dollar, especially for U.S. multinationals. A stronger dollar makes it harder for consumers and companies overseas to buy U.S. products by making them more expensive.
President Donald Trump said March 2 he was not pleased with the dollar’s run-up this year, stating: “I want a dollar that’s great for our country but not a dollar that’s prohibitive for us to be doing business with other countries.”
The U.S. trade deficit surged to a 10-year high in December, reaching $59.8 billion. The widening was driven by a 2.1 percent increase in imports and a 1.9 percent decline in exports.
“The trade trend defies President Trump’s pledge to reduce America’s reliance on imported goods, and he angrily shook his rhetorical fist at Fed Chairman Powell, blaming him for the strong US dollar. The President’s economic dot connections are correct,” Jack Ablin, founding partner of Cresset Wealth, said in a note to clients. “Dollar strength encourages imports while inhibiting exports by making US dollar-based goods and services less competitive. … This means that unless the dollar reverses course and weakens quickly, America’s trade deficit will likely worsen.”