Where a strong dollar is concerned, at least.
Here he is via Bloomberg yesterday, with our emphasis:
U.S. Treasury Secretary nominee Steven Mnuchin said an “excessively strong dollar” could have a negative short-term effect on the economy.“The strength of the dollar has historically been tied to the strength of the U.S. economy and the faith that investors have in doing business in America,” Mnuchin said in a written response to a senator’s question about the implications of a hypothetical 25 percent dollar rise. “From time to time, an excessively strong dollar may have negative short-term implications on the economy.”
He’s right. It can indeed have negative short-term implications on the economy. In support of that, here’s some very relevant words from the St. Louis Fed from last week. It’s the imports that matter:
It is clear that a strong dollar is associated with net exports contributing negatively to GDP growth. During the sample period’s two-year span [from the second quarter of 2014 to the first quarter of 2016] trade contributed positively to GDP growth in only one quarter.The negative impact was particularly strong over the first half of the appreciation period. For example, during the fourth quarter of 2014 and the first quarter of 2015, the contributions to the GDP growth rate from net exports were -1.14 percent and -1.65 percent, respectively. The negative effects diminished by the end of 2015, standing at -0.5 percent despite the dollar’s increase in value of another 10 percent…In response to the strength of the dollar, the contributions from imports played a much more significant role than that of exports. The cumulative contribution of imports to GDP growth was -4.6 percent, while the cumulative contribution of exports was slightly positive at 0.85 percent. This suggests an asymmetric reaction between exports and imports in response to increases in the dollar’s exchange rate. Thus, it is reasonable to conclude that the slowdown in GDP growth was associated more with the growth of imports rather than the reduction in exports.In sum, the new episode of appreciation of the dollar that began over the past several months is likely to hurt the current growth rate of GDP through an increase in imports rather than a decrease in exports if the trend from the previous period of appreciation holds.
The chart that goes with those pars is worth spending a bit of time with:
Of course, judging Mnuchin too quickly based just on his words here seems a bit unfair, particularly as, says Simon Derrick from BoNYMellon, “each Treasury Secretary between 2002 and 2011 pledged support for a strong USD, the USD index declined by 39% over the same period.”
Now if only Messrs Trump and Mnuchin could do something about that pesky policy divergence driving the dollar stronger (albeit with a recent dip).
Of course, that divergence, per Beckworth, “comes from the belief that Trump’s policies will spur robust growth. This belief may prove premature, but if it does come to fruition it will only reinforce the policy divergence by pushing interest rates higher.”
Which is awkward