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Focus on Washington

Incoming Treasury Secretary Janet Yellen’s confirmation hearings this week were illuminating. She urged Congress to pass another large stimulus package. She also endorsed a market-determined dollar value . This means the US will not weaken the dollar to create competitive trade advantage for US businesses. The continuing stimulus/deficit spending combined with ultra-accommodative Fed policies is expected to lower the dollar’s value against other currencies. This way the US can “naturally” allow the dollar to devalue while maintaining a position that allows us to point the finger at other nations that are engaging in overt currency weakening. With the Fed continuing to buy $120 billion in bonds per month and expanding its balance sheet up to $10 trillion, the flood of dollars is definitely contributing to asset inflation across the board (stocks, bonds, real estate, etc). Meanwhile consumer inflation remains low, allowing for loose fiscal and monetary policy. The threat to this policy is runaway inflation, which could force rates higher, threatening asset valuations. However, commercial real estate could then return to it’s status as an inflation hedge. Stay tuned. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners