3 summaries

Are Treasury and White House Statements Driving the Dollar Down? Economists Don’t Believe It Anymore

Most economists in a Wall Street Journal survey find administration rhetoric plays a minor role—or none at all

Feb 8, 2018 10:00 am ET

Over the past 20 years, Treasury secretaries and U.S. presidents have sought, mostly unsuccessfully, to influence the value of the dollar with their rhetoric.

It’s a tough task: Few economists believe administration comments have much power over the exchange rate.

The dollar has been declining for most of the past year, and the White House and Treasury have sent occasional signals they’re OK with this. Treasury Secretary Steve Mnuchin said last month in Davos, Switzerland, that a weak dollar can be good for manufacturers, and in a July interview with The Wall Street Journal, President Donald Trump said, “I like a dollar that’s not too strong. I mean, I’ve seen strong dollars. And frankly, other than the fact that it sounds good, lots of bad things happen with a strong dollar.” The administration has also walked some of those comments back.

Created with Highcharts 6.0.4

Dollar Drama

After surging from 2014 to 2016, the dollar has declined for most of the past year

The dollar has indeed been on the decline, falling by over 9% since the start of 2017, but economists in a Wall Street Journal survey don’t believe the administration’s comments have been the driving factor.

Asked what role the administration’s rhetoric has played in lowering the dollar, 59% of respondents said it had been a relatively minor cause, with an additional 18% agreeing the comments had played “no role in the dollar’s decline.”

“Impact from statements is short-lived,” said Nathaniel Karp, chief U.S. economist of BBVA Compass. “The trend is driven by other factors.”

Only 23% agreed with the statement that rhetoric had been “one of several major causes” and none in the survey agreed that administration statements were the “main cause” of the dollar’s decline.

The results are not a critique of the administration; rather, they are a gut check for those who assume Treasury secretaries have great power over the exchange rate. Many economists shared the belief that it’s instead the Federal Reserve, with its ability to shift U.S. interest rates, that has the far more powerful tool when it comes to the U.S. exchange rate.

“Global monetary policy is the primary driver,” said Gus Faucher, chief economist of PNC Financial Services Group.

There’s also the matter of how strong the U.S. is performing relative to other nations. For example, U.S. growth strengthened last year. In the fourth quarter, the economy was 2.5% larger than a year ago. But the U.S. was outperformed by the euro area, which grew 2.7% over the same time period.

“The global economy has shown a lot of strength of late, and that more than anything else has helped to increase the value of the euro and other currencies,” said Chad Moutray, chief economist of the National Association of Manufacturers.