http://blog.oppenheimerfunds.com/2012/09/25/fed-will-weaken-dollar-for-jobs/

Fed: Will Weaken Dollar for Jobs
September 25th, 2012

Alessio de Longis
Portfolio Manager

I have been saying for some time now that import price inflation is something investors should be mindful about. The general trend over time of a depreciating dollar could lead to rising prices of imported goods, a source of inflation that people might not necessarily think about, but that will definitely diminish their purchasing power. (See how The New 60/40 can help protect purchasing power). Last week’s QE3 announcement hinted that the Federal Reserve is focusing more on employment than on inflation. It could even be signaling that it is willing to allow a weaker dollar and inflation to rise if it meant job growth.

Because of this, I noted with great interest that within a period of just two days, two Federal Reserve Bank presidents, John C. Williams and Eric Rosengren, have discussed inflation in interviews and prepared remarks. Williams even went as far as to specifically mention import price inflation.

Williams, who is president of the Federal Reserve Bank of San Francisco, noted in an interview with Market News on Sept. 21 that “Bernanke did not mention the exchange rate channel of monetary policy, in which lower interest rates lower the value of the currency and boost net exports.” But, Williams added, “the exchange rate channel is an important channel of how (monetary policy) affects employment and inflation through import prices.”

The day before, Rosengren, who is president of the Federal Reserve Bank of Boston, said in a speech to the South Shore Chamber of Commerce, “I would point out that our efforts to lower long rates are focused on stimulating domestic demand, but at the same time lower long-term rates affect demand for U.S. assets, resulting in a modest change in the exchange rate—and this is likely to provide some support for export-oriented industries.”

What does this mean? The Fed is signaling not only that it is comfortable with trend U.S. dollar depreciation, but also that dollar depreciation is very much a key component of its monetary policy strategy. In other words, currency debasement is part of the recipe to create jobs. Beware, though: I believe part of this job creation will be paid for with loss of purchasing power for U.S. consumers.

Immigrants Needed
Adam Ozimek, Contributor

I wanted to quickly draw attention to two good posts on our need for high-skilled immigrants. The first is a great article from Noah Smith on why we need a huge amount of Asian immigration. Noah is good at thinking about immigration more broadly than typical economists, and this article is no exception:

East Asia, South Asia, and Southeast Asia together have over half the world’s population, but Asians make up only 5% of the United States. If our ethnic makeup was a portfolio of stocks, we would be severely underweight Asia.

Asia is important not just because it is huge, but because it is growing rapidly. Trade with these countries will be incredibly important to the American economy this century. One way to facilitate trade and investment is ethnic ties — witness the way the Chinese diaspora has invested in China, or the way Indian-American entrepreneurs have forged links between Silicon Valley and India. We need much more of this….

Furthermore, I believe that the cultural benefits of Asian immigration will be just as big as the economic and political benefits. Adding diversity to our melting pot will speed up America’s inevitable and necessary transition from a “nation of all European races” to a “nation of all races.” The sooner that happens — the sooner people realize that America’s multi-racialization is a done deal — the quicker our political debate can shed its current ethnic overtones and go back to being about the issues.