Fwd: Inflation

'The currency's strength affects the economy in two main ways: It holds back economic growth by reducing the competitiveness of U.S. exports while depressing inflation by pushing down import prices.

Economic Headwind

Not only is the dollar's rise reducing price pressures, making it harder for the Fed to tighten, it's also acting as an "economic headwind reducing the need to tighten," said Lou Crandall, chief economist at Wrightson ICAP LLC in Jersey City, New Jersey.

The FOMC made a nod to the dollar's impact on the economy in its policy statement, noting that export growth has weakened. Yellen was more explicit in her press conference, saying that exports would be a "notable drag" on growth this year and tying that to the strength of the dollar, which she said partly reflected the strength of the U.S. economy.

Yellen said the currency's rise was also "holding down import prices and, at least on a transitory basis at this point, pushing inflation down."

"The Fed sees the stronger dollar as effectively tightening conditions in the U.S.," said Jonathan Wright, a professor at Johns Hopkins University in Baltimore and a former economist at the Fed's Division of Monetary Affairs. "They are worried about what will happen to the dollar and financial markets when the Fed starts tightening with much of the rest of the world at negative interest rates." '

 

http://www.bloomberg.com/news/articles/2015-03-19/dollar-s-surge-makes-it-hard-for-fed-to-buck-global-easing-trend