Would a strong dollar imperil the Fed's efforts to reduce the size of its balance sheet by making those assets too expensive to buy for foreign investors?
It's possible that at some point foreign investors pull back because exchange rates make U.S. assets too expensive for their taste. Interestingly, in this case, exchange rates would fall (or slow) as a result of the pullback, helping to improve affordability for foreign investors again. The magic of markets! Absent a liquidity crisis of global proportions, the Fed is probably in an OK position to make whatever pricing decisions it needs to make in order to offload its balance sheet in the coming months and years. But the stronger dollar is influencing the job of policy makers in several other ways. The flood of foreign money is actually working against the Fed's goal of raising rates, as increased demand for U.S. investments works to lower rates. And the Fed has to be careful as a stronger dollar works in some ways to help dampen the effects of inflation, with the dollar "going farther" in terms of commodities bought from outside our borders--it's another factor to keep track of as it tries to engineer a soft-landing for the economy.
Would a strong dollar imperil the Fed's efforts to reduce the size of its balance sheet by making those assets too expensive to buy for foreign investors?
It's possible that at some point foreign investors pull back because exchange rates make U.S. assets too expensive for their taste. Interestingly, in this case, exchange rates would fall (or slow) as a result of the pullback, helping to improve affordability for foreign investors again. The magic of markets! Absent a liquidity crisis of global proportions, the Fed is probably in an OK position to make whatever pricing decisions it needs to make in order to offload its balance sheet in the coming months and years. But the stronger dollar is influencing the job of policy makers in several other ways. The flood of foreign money is actually working against the Fed's goal of raising rates, as increased demand for U.S. investments works to lower rates. And the Fed has to be careful as a stronger dollar works in some ways to help dampen the effects of inflation, with the dollar "going farther" in terms of commodities bought from outside our borders--it's another factor to keep track of as it tries to engineer a soft-landing for the economy.