Stop worrying about stronger dollar
It's time for the Federal Reserve to end its dollar fixation. That's the takeaway from a Goldman Sachs Group Inc report that suggests the US currency poses little threat to the Fed's inflation goals, challenging policy makers' comments to the contrary.
That's good news for dollar bulls who are betting on expanded monetary-policy divergence between the U.S., Europe and Japan. Inflation is at the heart of the Fed's debate about the timing of interest-rate increases as officials look to normalize monetary policy after seven years of near-zero interest rates.
With a stronger dollar not translating into significantly cheaper import prices, Goldman Sachs suggests the central bank faces fewer headwinds to hiking rates than markets are currently pricing in. "The majority of the effects of a stronger dollar on import prices have already been realized," New York-based analysts Zach Pandl and Elad Pashtan wrote in the note.
"Inflation data to date appears to be more closely tracking a path with less dollar pass-through to core inflation" than implied by the Fed's projections for consumer prices.