So [negative bond yields abroad do] tend to induce capital inflows into the United States, which push down our Treasury yields, so ours are considerably higher. But in absolute terms, they're really quite low.

And differentials in the stance of monetary policy also put impacts on the value of the dollar. The dollar has gone up around 20 percent against a broad basket of currencies since mid 2014, and that's had a negative effect on our trade with the rest of the world and put downward pressure on corporate profits and hiring and manufacturing.

“International headwinds affecting the U.S. economy have been widely discussed in global financial markets during the last several years,” he said. “Recent negative international influences on the U.S. economy appear to be waning.”

He looked at two factors that have been widely cited in the international headwinds discussion: global financial stress and the negative impact of a stronger dollar on U.S. gross domestic product (GDP) growth.

“Measures of U.S. financial stress indicate that stress has fallen off its peak earlier this year,” he said. Regarding the second headwind, Bullard noted that the dollar appreciated mostly during the second half of 2014, coinciding with the run-up to the European Central Bank’s quantitative easing program. “This appeared to have had a substantial effect on the net exports contribution to U.S. GDP growth during the winter of 2014-2015,” he said. “Since then, however, the effects of a stronger dollar appear to be waning.”

We certainly look at the dollar as it impacts the US. The dollar is obviously a two or multi-player game where it depends what the other guys are doing. I think the main movement in the dollar was really during 2014 when they decided to do QE. It was the run-up to QE in Europe and that's the period where the Euro weakened substantially and the dollar strengthened substantially. That's almost all of the recent movement is due to that period from about May to December of 2014. Once they actually made the decision to do QE, the party was over. The dollar has strengthened a little bit since then, but mostly based on news.

I think we have been and markets have been and we have been quite surprised by movements in oil prices. I think in part they reflect supply influences, but demand may also play a role.

The stronger dollar is partly something that we anticipated because the U.S. economy has been performing more strongly than many foreign economies, and we have a divergence in the stance of monetary policy that influences capital flows in the dollar. Nevertheless, the strength of the dollar and the extent to which it has moved up since mid-2014 is not something that we anticipated.

So yes, we've been surprised in part by those developments and they have played a significant role in holding down inflation.

The appreciation of the dollar since last summer will likely affect the export sector, to some extent. My view is that the impact of the dollar's more expensive exchange value and, for that matter, the direct impact of lower oil prices on the energy sector are not severe for the national economy as a whole. But whenever two major world "prices" adjust so markedly, unanticipated second- and third-order effects could result. Geopolitical event risk connected to the rapid adjustment of these globally high-impact prices cannot be dismissed. Analytical humility is a sensible posture.

Charlie Evans: We pay attention to anything and everything that can affect the U.S. economy and us achieving our mandates and global effects are very important. So making sure that the slow global economy isn't going to slow the U.S. economy down is important. The effect on cost and things like that. We pay attention to it but

Becky Quick: currency markets too? Like the strong dollar?

Charlie Evans: we look at what relevant costs are for manufacturers and consumers and everything. And so import prices are going to be part of that. But we are always looking at what the implications are for the U.S. we're cognizant of the implication that has on the rest of the world and we pay attention to it as much just because that has a rebounding effect on the U.S. too. We have to understand that.

"The exchange rates are changing to reflect what is going on... That is appropriate," Fischer, vice chair at the Fed, said on Thursday ahead of the annual meetings of the International Monetary Fund and World Bank in Washington. "We will not intervene to affect the exchange rate."

WINKLER: Five-year bond yields suggested for expected inflation have turned positive for the first time in more than three years. Is the Fed ready to accept this tightening of financial conditions?

DUDLEY: Well I think we evaluate what the economic outlook is and what's happening to financial conditions. And obviously we don't control financial conditions. It also depends on what's happening in the global economy. But we definitely take that on board. I think when I - the dollar it has appreciated a bit over the last few months, not by a significantly (inaudible), but obviously that does factor in terms of our economic forecast. If the dollar were to strengthen a lot it would have consequences for growth. We would have poorer trade performance, less exports, more imports. And if the dollar were to appreciate a lot it would tend to dampen inflation. So it would make it harder to achieve our two objectives. So obviously we would take that into account.

...

I think that the dollar partly reflects the relative performance of the U.S. economy relative to performances in other countries, and in that case that you could sort of understand what we're seeing. I think from our perspective we don't care about the dollar per se. In other words that's not a goal, independent goal of policy. Our goal policy is maximum sustainable employment and two percent inflation. Obviously as the dollar moves that affects the appropriateness of a given monetary policy to achieve those objectives. And we certainly take it on board just like we take on board what's happening to the stock market, what's happening to the bond market, what's happening to credit spreads, what's happening to credit availability. All those factors sort of drive our assessment of what's happening to financial conditions. And then that influences our economic outlook. And then that in turn then influences the monetary policy response.

WINKLER: Five-year bond yields suggested for expected inflation have turned positive for the first time in more than three years. Is the Fed ready to accept this tightening of financial conditions?

DUDLEY: Well I think we evaluate what the economic outlook is and what's happening to financial conditions. And obviously we don't control financial conditions. It also depends on what's happening in the global economy. But we definitely take that on board. I think when I - the dollar it has appreciated a bit over the last few months, not by a significantly (inaudible), but obviously that does factor in terms of our economic forecast. If the dollar were to strengthen a lot it would have consequences for growth. We would have poorer trade performance, less exports, more imports. And if the dollar were to appreciate a lot it would tend to dampen inflation. So it would make it harder to achieve our two objectives. So obviously we would take that into account.

...

I think that the dollar partly reflects the relative performance of the U.S. economy relative to performances in other countries, and in that case that you could sort of understand what we're seeing. I think from our perspective we don't care about the dollar per se. In other words that's not a goal, independent goal of policy. Our goal policy is maximum sustainable employment and two percent inflation. Obviously as the dollar moves that affects the appropriateness of a given monetary policy to achieve those objectives. And we certainly take it on board just like we take on board what's happening to the stock market, what's happening to the bond market, what's happening to credit spreads, what's happening to credit availability. All those factors sort of drive our assessment of what's happening to financial conditions. And then that influences our economic outlook. And then that in turn then influences the monetary policy response.

Obviously as the dollar moves that affects the appropriateness of a given monetary policy to achieve those objectives. And we certainly take it on board just like we take on board what's happening to the stock market, what's happening to the bond market, what's happening to credit spreads, what's happening to credit availability. All those factors sort of drive our assessment of what's happening to financial conditions. And then that influences our economic outlook. And then that in turn then influences the monetary policy response.

Finally, although it’s not our main intention, these unconventional policies have also had an effect on the dollar versus foreign currencies. When interest rates in the United States fall relative to rates in other countries, the dollar tends to decline as money flows to foreign markets with higher returns. One estimate is that a $600 billion program like QE2 causes the dollar to fall by roughly 3 or 4 percent. That helps stimulate the U.S. economy by making American goods more competitive at home and abroad.

On the market response to the Fed's September 13, 2012 asset-purchase announcement:  [S]tock prices are up substantially, mortgage rates are lower, and exchange rates are lower. On the latter 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.

The dollar does remain, by some margin still, the currency in which the majority of international reserves are held.  There is, after all, no official reserve currency. It's a choice made by each government, by each central bank, and by each private- sector investor or company. And again, the dollar at this point remains the -- the currency of choice. I suspect that will continue to be the case for some time.

A lot of reasons for that, including, again, the underlying strength and vitality of the U.S. economy, but also very importantly the size, the depth and liquidity of our financial markets, which, again, is something we don't want -- we don't want to lose. We want those markets to be liquid, reliable and -- and deep. And the ability to -- to buy and sell, transact easily is very important to holders of
-- of liquid assets. And that's why -- that's one of the reasons that the dollar has remained a key currency.

In response to a question about the dollar's reserve currency status

For the Federal Reserve, pursuing the dual mandate of full employment and price stability allows us to make an important contribution to global stability and growth. Ensuring low and stable inflation preserves the purchasing power of the dollar and sustains its attractiveness as a medium of exchange. Supporting maximum sustainable employment means that we have an important growth mandate.

This remains the case even when we are at the so-called zero bound with respect to short-term rates. In this context, I believe that our large-scale asset purchase programs were fully consistent with our global responsibilities.

While supply and demand fundamentals surely account for most of the recent movements in commodity prices, some observers have attributed a significant portion of the run-up in prices to Federal Reserve policies, over and above the effects of those policies on U.S. economic growth. For example, some have argued that accommodative U.S. monetary policy has driven down the foreign exchange value of the dollar, thereby boosting the dollar price of commodities...

In this case, the direction of causality runs from commodity prices to the dollar rather than the other way around. The best way for the Federal Reserve to support the fundamental value of the dollar in the medium term is to pursue our dual mandate of maximum employment and price stability, and we will certainly do that.

Another argument that has been made is that low interest rates have pushed up commodity prices by reducing the cost of holding inventories, thus boosting commodity demand, or by encouraging speculators to push commodity futures prices above their fundamental levels. In either case, if such forces were driving commodity prices materially and persistently higher, we should see corresponding increases in commodity inventories, as higher prices curtailed consumption and boosted production relative to their fundamental levels. In fact, inventories of most commodities have not shown sizable increases over the past year as prices rose; indeed, increases in prices have often been associated with lower rather than higher levels of inventories, likely reflecting strong demand or weak supply that tends to put pressure on available stocks.