If the Fed decides to weaken the dollar utilizing unsterilized intervention, it should be aware that this action may backfire because it will increase the money supply and thus increase inflation.

Question

Quizplus · Accepted Answer

Unsterilized intervention involves the Fed purchasing foreign currency which increases the domestic money supply. An increase in the money supply can lead to inflation.

If the Fed Decides to Weaken the Dollar Utilizing Unsterilized