Bernanke's "delicate dance"

Fed Will Keep Eye on Sliding Dollar

Excerpt:

Federal Reserve Chairman Ben Bernanke on Monday said the central bank will keep a close eye on the sliding U.S. dollar even as he pledged anew to keep interest rates at record-lows to nurture the economic recovery.

In remarks to the Economic Club of New York, Bernanke engaged in a delicate dance.

He made clear Fed policymakers will keep rates at super-low levels. Yet through his words, Bernanke is also trying to bolster confidence in the dollar without actually raising rates, a move that could short-circuit the fragile recovery.

Economists say a free-fall in the value of the dollar is remote but can't be entirely dismissed.

Although low interest rates can put additional downward pressure on the dollar, they are needed to encourage American consumers and businesses to spend more and fuel the economic turnaround.

Comment: If he holds interest rates low to stimulate the economy, the dollar will continue to drop (or at least be suppressed). Raise interest rates (savers would rejoice!) would prop the dollar but hurt the recovery.