US Fed eyes weakening US dollar, inflation

03 June 2008 19:30  [Source: ICIS news]

HOUSTON (ICIS news)--The Federal Reserve (Fed) is monitoring the value of the US dollar versus other currencies, part of its larger mandate of fighting inflation, Chairman Ben Bernanke said on Tuesday.

The weakening dollar has caused US chemical exports to boom, as many producers relied on foreign markets to offset weak domestic demand. However, according to some analysts, the weaker dollar has also been associated with the record rise in crude-oil prices.

In a speech at the International Monetary Conference in Barcelona, Spain, Bernanke said the Fed and the US Department of Treasury are following developments in foreign exchange markets.

"We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations and will continue to formulate policy to guard against risks to both parts of our dual mandate, including the risk of an erosion in longer-term inflation expectations," Bernanke said.

"Over time, the Federal Reserve's commitment to both price stability and maximum sustainable employment and the underlying strengths of the US economy - including flexible markets and robust innovation and productivity - will be key factors ensuring that the dollar remains a strong and stable currency," he said.

By "price stability," Bernanke is referring to inflation. Until recently, US companies have avoided passing through escalating costs, in part due to softer US demand, he said.

However, there is no guarantee that could continue, Bernanke said.

Separately from Bernanke's comments, US producers Dow Chemical, Huntsman, PolyOne and Rohm and Haas have all announced broad price increases or surcharges in an effort to respond to compression of profit margins.

While futures markets point to some stabilisation, prices for crude oil and other commodities continue to increase, he said.

In the same speech, Bernanke also gave an overview of the nation's economy.

Echoing previous Fed comments on the apparent improvement on certain segments of the financial markets, Bernanke cautioned that conditions remain strained, he said.

Housing construction remains weak, and a large inventory of unsold new houses persists, he said.

While consumer spending has held up better than expected, households continue to face pressure from falling house prices, a weaker job market, tighter credit and higher energy prices, Bernanke said.

The nation's economic growth will remain positive - although slow - for the fourth quarter of 2007 and the first quarter of the year, Bernanke said. Growth will remain weak in the second quarter before improving later this year.

"However, until the housing market, and particularly house prices, shows clearer signs of stabilization, growth risks will remain to the downside," Bernanke said. "Recent increases in oil prices pose additional downside risks to growth."

To discuss issues facing the chemical industry go to ICIS connect

By: Al Greenwood
+1 713 525 2653

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly