text: Unless something catastrophic happens to the USD, such as hyperinflation, I think Powell’s use of the word “diminished” is key. Strong international demand will keep the USD at the top of global currencies for the foreseeable future. And for their part, People’s Bank of China officials regularly say they don’t want to upend the dollar as the global reserve, either. But they do want to diminish it as they expand the digital Yuan through the Belt and Road Initiative. Right now, China, the world’s second largest economy, has to continue some global business in dollars. Their capital markets aren’t large enough, nor are they safe or transparent enough, for the yuan to become the world reserve. Despite this week’s media freakout, I don’t believe major changes are imminent. That said, I also think the digital dollar or use of USD-backed stable coins can extend the lifespan of the USD as the world reserve currency – as long as the United States remains politically stable. – M.S.ECONOMIC WARNING INTSUMRay Dalio on the USDRay Dalio, founder of Bridgewater Associates ($223B AUM), one of the world’s largest hedge funds, continued his warnings on the dollar this week, saying that in this part of the cycle, “value of money will go down.” Americans “will not want to hold bond investments, because those will start to have a negative real return,” Dalio said. Additionally, “for the foreseeable future, [cash] will not be an effective storehold of wealth, as it is now not an effective storehold of wealth.” (Analyst Comment: Dalio previously reiterated his “cash is trash” outlook on the USD, explaining that in inflationary environments, real assets increase in price while the value of the dollar decreases. Dalio gave no forecast for easing pressures. – T.W.)Beige Book provides latest economic outlook The Federal Reserve’s latest release of its Beige Book, a publication of economic conditions across the country, highlights overall economic activity, labor markets, and price changes since January. Here are the highlights:Economic activity has “expanded at a modest pace since mid-January.” Consumer spending was down slightly. Mortgage loan applications have mainly remained the same since January. Some regions are facing difficult agricultural conditions.“The overall economic outlook over the next six months [remains] stable and generally optimistic, although reports [from regional Fed banks] highlighted an elevated degree of uncertainty.”Labor markets experienced a net positive since the Fed’s last report. Employment increased “moderately.” Small business employment decreased by 96,000, indicating that most nonfarm private sector employment growth was obtained via companies that already had over 750 employees. Businesses continue to increase wages. Moving forward, wage growth is expected to continue, although not at levels experienced during February.“Prices charged to customers increased at a robust pace across the nation,” with some central bank regions reporting that price increases are accelerating. Increases in transportation costs, worsening supply chain conditions, and increased input costs are driving price increases. Consumer demand for goods remains strong despite the price increases. “Additional price increases over the next several months” are expected as businesses “continue to pass on input cost increases.” – T.W.Inflation forecasts increaseGoldman Sachs economists now expect four rate hikes from the Fed in 2023, instead of three. Goldman chief economist Jan Hatzius expects inflation at 3.7% by the beginning of 2023. By the end of 2023, the investment bank anticipates inflation retreating to 2.4%, which is still up from previous expectations of 2.2%. Goldman economists believe the Fed will implement “rate hikes at all seven remaining FOMC meetings” during 2022 as inflation remains significantly above optimal levels. The group of economists is inconclusive when determining how much inflation will stabilize as this year continues. – T.W.Smart Money INTSUM