US productivity may fuel interest rate divergence and dollar strength – Fed study
Business dynamism and financing conditions may explain lack of spillover into other advanced economies
Research from the Federal Reserve suggests productivity gains from high-tech firms and artificial intelligence (AI) may be contributing to the strength of the dollar and could widen the gap between the federal funds rate and interest rates in other advanced economies.
“Improved prospects for US productivity could fuel some divergence in the natural rate of interest between the US and G-6 and an appreciation of the dollar,” say the authors, Danilo Cascaldi-Garcia and Hyunseung Oh. “The lack of
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