How does the foreign exchange value of the dollar relate to Federal Reserve policy?

The Department of the Treasury is the lead agency setting U.S. international economic policy, including policies regarding the dollar. The value of the dollar is determined in foreign exchange markets, and neither the U.S. Treasury nor the Federal Reserve targets a level for the exchange rate. Nonetheless, movements in the exchange value of the dollar represent an important consideration for monetary policy--such movements exert influence on U.S. economic activity and prices and constitute one of the ways the effects of monetary policy reach the broader economy. Accordingly, while U.S. monetary policy does not aim for a particular level of the dollar, policymakers take into account the effects of the dollar on prices and economic activity in the United States.


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Last Update: August 24, 2016