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The Global Impact of the Fed's Cheap Dollar Policy

Thursday, Dec. 3, 2009

Low interest rates have become something of a staple at the U.S. Federal Reserve in recent years. However, early last month, the U.S. central bank took its "cheap dollar" policy to another level by committing to near-zero interest rates for the foreseeable future. The Fed's decision has its roots in domestic economic goals: With American unemployment hovering above 10 percent, low rates are seen as a way to jump-start bank lending to businesses -- a necessary first step in getting these firms to increase staffing. Low rates also make it cheaper to buy a home and should help the U.S. housing market to rebound.

However, U.S. monetary policy does not just affect the American economy. Indeed, the Fed's decisions have far-reaching implications for the entire international economic system. So, what are the global consequences of a "cheap dollar"? ...

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