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

Question

Quizplus · Accepted Answer

Unsterilized intervention involves the purchase of foreign currency by the central bank, which increases the money supply and can lead to inflation if the increase is not balanced by a decrease in other monetary factors. Therefore, if the Fed decides to weaken the dollar using unsterilized intervention, it should be aware of the potential inflationary consequences.

If the Fed Decides to Weaken the Dollar Utilizing Unsterilized