The dollar inflation and the Fed

No wonder inflation expectations have been rising. Economist Michael Darda points out that the University of Michigan’s year-ahead inflation survey hit 5.2% in May, the highest reading since 1982. Yet some at the Fed continue to insist that inflation expectations are “well-anchored.” Anchored on what planet?

The price for this Fed blunder is going to be very high, and we don’t mean only at the grocery store or gas station. If inflation doesn’t fall, the Fed will have no choice but to start raising rates again, perhaps rapidly and perhaps soon. That could put a damper on any economic recovery, especially if it coincides with the huge tax increase that Barack Obama is promising next year.

In another op-ed David King, formerly of the NY Fed, pleads for a strong dollar policy.

…Exchange rates can be managed. We need exchange rate policy.

Question: other than keeping monetary policy under control, what can the Fed or Treasury do about exchange rates?

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