A 10 percent increase in the dollar in a quarter would reduce U.S. economic growth by half a percentage point over a year and by another 0.2 point the following year, according to a New York Federal Reserve blog post on Friday.
The greenback has gained 12 percent against other major currencies since mid-2014 on improving jobs conditions and in anticipation of a Federal Reserve rate increase by late 2015.
This has raised worries among Fed officials and economists about the impact of a sturdier dollar on U.S. exports.
U.S. gross domestic product contracted 0.2 percent in the first quarter, with exports falling 5.9 percent and imports rising 7.1 percent, the government said in June.
While a stronger dollar makes imports cheaper for consumers and domestic producers, it seems not enough to offset the drag for U.S. exporters, New York Fed analysts Mary Amiti and Tyler Bodine-Smith wrote in the blog post.
"In order to try to maintain competitiveness, U.S. firms adjust their markups rather than pass on the full exchange rate appreciation into foreign prices. That is, U.S. exporters take a hit on their profit margins in order to maintain market shares." they said.