Istanbul, March 13 () - Strong dollar would sap pricing power of both of the US business and labour, according to a report released by international rating company Moody's on Friday.
"A persistently strong dollar is likely to weaken the pricing power of US businesses and labour" said John Lonski, Chief Economist at Moody's, the author of the report with the headline Strong Dollar Saps Pricing Power. "Conceivably, dollar exchange rate appreciation might substitute for a fed funds rate hike. All else the same, the need for a higher fed funds rate recedes as the dollar exchange rate strengthens."
Since bottoming in the summer of 2011, the US dollar had soared higher by a cumulative 29 percent against a basket of major foreign currencies, Lonski said, ponting out that, in the context of an economic upturn, the dollar’s ongoing ascent was the steepest vis-a-vis major foreign currencies since the cumulative 31 percent surge of the five years ended 2000.
The strong dollar has put downward pressure on the prices of US exports and imports, he stressed, warning that, February 2015’s -5.9 percent annual plunge by the US export price index had been the deepest such setback on record for a mature US economic recovery.
He reminded that, February’s price index for US imports excluding petroleum products fell by -1.8 percent annually and said, "Consumers spend income, not jobs Other than February’s unsustainably large addition to payrolls, recent data on business activity have been uninspiring."
Compared to payrolls’ previous cycle peak of January 2008, 2.8 million jobs had been created as of February 2015, or the 68th month of the current upturn, he said. "However, that seemingly prodigious addition lags far behind the comparably measured creation of 10.1 million jobs, on average, by the 68th month of the three previous upturns" he said and added:
"Consumers don’t spend jobs; they spend income".