Perhaps someone thought Janet Yellen’s congressional testimony wasn’t dovish enough last week because on Friday, the "strong USD is a headwind for growth" warning popped up again, this time in the form of a post over at the NY Fed’s Liberty Street Economics blog.
"The recent strengthening of the U.S. dollar has raised concerns about its impact on U.S. GDP growth," the authors proclaimed, before saying that according to their calculations, "a 10 percent appreciation in one quarter shaves 0.5 percentage point off GDP growth over one year and an additional 0.2 percentage point in the following year if the strength of the dollar persists." So a strong dollar is bad, and a persistently strong dollar is even worse.
So no liftoff? After all, one wouldn’t want to derail the equity rally economic recovery by giving the dollar an excuse to strengthen even further. Or maybe this is just inconsequential pontificating by a researcher and a junior analyst.
But if the Fed is truly concerned that a rate hike cycle might exacerbate the supposed drag on the economy exerted by the strengthening dollar and that tightening when the rest of the world is immersed in competitive devaluation could create FX headwinds for US exports, then why not nominate a currency strategist to the Fed board to weigh in on the subject? Well, as it turns out, that’s precisely what the Obama administration did on Monday. Here’s WSJ:
President Barack Obama will nominate University of Michigan economist Kathryn Dominguez for a seat on the Federal Reserve’s Board of Governors, the White House said Monday.
Ms. Dominguez is a professor of public policy and economics at the University of Michigan’s Gerald R. Ford School of Public Policy, having previously taught at Harvard University’s John F. Kennedy School of Government. She has a doctorate in economics from Yale University and her academic specialties include international financial markets and foreign exchange-rate behavior.
Two seats on the seven-member board are vacant. Mr. Obama in January nominated former Bank of Hawaii Chief Executive Allan Landon to fill the other seat.
Ms. Dominguez’s nomination could clear the way for the Senate to hold hearings on both nominees. Senate Banking Committee Chairman Richard Shelby (R., Ala.) had said he wouldn’t schedule a confirmation hearing for Mr. Landon until Mr. Obama put forward a name for the other seat.
A Shelby spokeswoman said Monday that the senator would "carefully review the [Dominguez] nomination and the committee will consider it at an appropriate time."
Ms. Dominguez has tackled some complex issues in her academic work. In one 2011 working paper, she and her co-authors found countries that accumulated large amounts of foreign currency reserves before the financial crisis enjoyed faster economic growth than those that did not. A paper in 2014 looked at the interactions of exchange rates, capital controls and foreign reserves during the financial crisis.
In a 2013 working paper, she and a co-author said financial and fiscal developments in Europe, along with "self-inflicted wounds from the political stalemate over the U.S. fiscal situation," helped explain why the U.S. recovery had been so slow.
We'll reserve judgement for now, but you can review Dominguez' CV below (her contact information is there and we're sure she would welcome questions from Zero Hedge readers), and we've also included a video with her take on the "recovery" - on the surface, Dominguez certainly doesn't seem too enthusiastic about the economic rebound.