a cura di Joachim Fels, Consulente economico globale di Pimco
Le teorie tradizionali sulla determinazione del tasso di cambio non possono spiegare perché il dollaro abbia continuato a indebolirsi. Secondo Fels infatti, tali teorie suggeriscono che il dollaro avrebbe dovuto rafforzarsi mentre ha continuato a deprezzarsi rispetto alla maggior parte delle altre valute.
La teoria monetaria afferma che meno dollari contro più euro e yen “stampati” dovrebbero apprezzarsi piuttosto che deprezzarsi. Inoltre, un’espansione fiscale combinata con una stretta monetaria, che è ciò che sta accadendo negli Stati Uniti in questo momento, dovrebbe comportare un dollaro più forte.
L’opinione dell’esperto di PIMCO è che i mercati potrebbero aver iniziato ad anticipare un potenziale cambio di regime verso una politica collaborativa degli Stati Uniti dove il governo finanzia l’espansione fiscale con emissioni obbligazionarie a più breve scadenza mentre la Fed adotta una strategia di politica monetaria che giustifichi il mantenimento dei tassi ufficiali. Pertanto i rendimenti obbligazionari a più breve scadenza risultano relativamente bassi anche nel caso di un superamento dell’inflazione potenzialmente prolungato.
Inoltre, all’interno del FOMC è iniziato un dibattito attivo sulla possibilità di modificare la strategia di targeting per l’inflazione, spostandosi verso un obiettivo di livello di prezzo o verso un intervallo di inflazione. Entrambe le alternative consentirebbero un prolungamento dell’obiettivo di inflazione del 2% e quindi una politica di tassi (relativamente) bassi più a lungo, che permetterebbero una politica fiscale più espansiva.
Traditional theories of exchange rate determination cannot explain why the dollar has continued to weaken. I propose an alternative narrative: Perhaps the foreign exchange market is anticipating a new regime of (implicit) U.S. fiscal and monetary policy coordination where the government finances fiscal expansion primarily with shorter-dated bond issuance while the Fed adopts a modified monetary policy strategy that helps to justify keeping policy rates and thus shorter-dated bond yields relatively low even in the case of a potentially prolonged inflation overshoot. This narrative would help to explain not only the weakening dollar but also rising break-even inflation rates, a relatively flat yield curve and rallying equity markets.
“In theory there is no difference between theory and practice. In practice, there is.” The experts are still debating whether the legendary Yogi Berra really ever said this (most likely he didn’t). Yet, whoever came up with the quip, he or she was right, especially when it comes to the recent dollar trend. Traditional theories of exchange rate determination suggest the dollar should have strengthened. In practice, it has continued to depreciate against most other currencies.
Take the monetary approach to the exchange rate first. The Fed is now shrinking its balance sheet while the ECB and the Bank of Japan are still expanding theirs, though at a reduced pace. According to the monetary theory, less dollars versus more euros and yens “printed” should see the greenback appreciating rather than depreciating.
Next, consider the Mundell-Fleming model, which has long been the workhorse of international monetary economics. In this model, a fiscal expansion combined with monetary tightening – which is what’s happening in the U.S. right now – should spell a stronger dollar as this policy mix would typically result in higher real interest rates relative to the rest of the world, which would suck in capital and thus strengthen the currency. In fact, U.S. nominal and real interest rates have been rising by more than foreign rates. Alas, the forex market has politely ignored the Mundell-Fleming textbook model so far.
Another popular theory of exchange rate determination is relative growth differentials or surprises. And indeed, growth in non-U.S. G10 economies has generally surprised on the upside relative to the U.S. over the past year, particularly in Europe. This helps to explain why the dollar weakened in 2017. However, the relative growth surprise gap closed a while ago as the U.S. data have come in stronger than expected as well, and yet the dollar has weakened further.
Of course, exchange rates are often driven by fashions and fads rather than fundamentals, not only over short time horizons, and the traditional fundamentals mentioned above may still reassert themselves to produce a dollar rebound. Forecasting exchange rates is inherently difficult, and I don’t envy anyone who has to do it for a living (I’ve been there and I don’t have fond memories.).
However, here’s a possible fundamental narrative for the dollar depreciation that would also be consistent with recent moves in other asset prices: Markets may have started to anticipate a potential regime change in U.S. monetary and fiscal policy towards closer (implicit) cooperation between the Treasury and the Fed. Fiscal policy would aim at lifting nominal growth while monetary policy would keep interest rates relatively low.
Starting with fiscal policy, the U.S. has now embarked on an expansionary path with tax cuts and potentially higher federal spending. According to the Treasury’s current plans, much of the additional bond issuance is likely to be in the short-to-intermediate part of the yield curve. This has already contributed to the rise in short-to-intermediate bond yields and a flattening of the yield curve.
This is where monetary policy comes in. Even though the FOMC now forecasts higher growth and a lower unemployment rate this year and in the next couple of years largely due to a factoring in of additional fiscal stimulus, the median FOMC projection for short-term interest rates was not revised higher in the latest SEP in December. Moreover, an active debate has started within the FOMC about potentially modifying the inflation targeting strategy by moving to a price level target or an inflation range. Both alternatives would allow a more prolonged overshoot of the 2% inflation target and thus a policy of (relatively) low rates for longer, which would accommodate a more expansionary fiscal policy.
Implicit fiscal and monetary coordination would support a combination of a weaker currency, short- and intermediate interest rates that are anchored at relatively low new neutral levels, rising inflation expectations and still-buoyant equity markets. Which is exactly what we have been seeing recently. Thus, viewed through the lenses of a potential new regime of fiscal and monetary coordination recent market moves in the dollar, bonds and equities are less puzzling than they appear at first glance.
Of course, this is just another attempt to rationalize recent market moves that are at odds with traditional theories. Whether the fiscal-monetary-cooperation narrative helps to predict the future remains to be seen. However, to end with another quote from Yogi Berra: “You can observe a lot by just watching”.