FEDS note<\/a> published on Friday:<\/p>\n The role of the U.S. dollar has received renewed attention this year. A sharp rise in policy uncertainty has led some to question the strength and stability of the U.S. economy. In particular, increased attention has been paid to the U.S. fiscal outlook, as noted in the recent downgrade by Moody\u2019s of the credit rating on U.S. government debt. And the U.S. has increased its level of tariffs and thereby somewhat reduced its openness to trade flows. Given that most data on international dollar usage is available with a lag, this note is not yet able to show any potential results of the change in the U.S. credit rating or changes to tariff rates in 2025. Rather, it provides a baseline for where the international role of the dollar stood before these announcements. In particular, we can examine the longer-run effects of U.S. sanctions on Russia that were imposed following its invasion of Ukraine in 2022.<\/p>\n<\/blockquote>\n From the Note:<\/p>\n Source: Bertaut et al. (2025).Sc<\/p>\n I think there is a bit of understatement with respect to the potential impact of recent statements, including (1) \u201cLiberation Day\u201d and aftermath, (2) ongoing assaults on Fed independence by Trump et al.<\/p>\n In particular, Steven Kamin\u2019s analysis<\/a> of time-variation in the VIX-dollar correlation is noted in this recent Economist piece<\/a>. Torsten Slok in today\u2019s examination<\/a> identify what correlates are necessary to explain the recent dollar-interest rate divergence (hint: includes tariffs but also a post-\u201cLiberation Day\u201d dummy, trade policy uncertainty measure, and cumulative mentions of \u201cMar-o-Lago accord\u201d.<\/p>\n Personally, I like looking at the USD-10yr TIPS correlation over three \u201ccrisis\u201d episodes:<\/p>\n\n
![\"\"](\"https:\/\/econbrowser.com\/wp-content\/uploads\/2025\/07\/bertautetal_fig1.png\")
<\/a><\/p>\n
![\"\"](\"https:\/\/econbrowser.com\/wp-content\/uploads\/2025\/07\/USD_TIPSscatter.png\")
<\/a><\/p>\n