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Former Fed Vice Chair Blinder: Meddling with the dollar could 'kick off a real swoon'

Key Points
  • "The problem with talking down the dollar is you may get more than you bargained for," former Fed Vice Chairman Alan Blinder said on CNBC's "Power Lunch."
  • Earlier this month, President Donald Trump said the U.S. should "match" alleged currency manipulation by China and Europe.
  • The U.S. Dollar Currency Index has risen more than 3% over the past 12 months.
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Presidents can send dreadful nominees to Fed as a weapon: Blinder

Princeton professor and former Fed Vice Chairman Alan Blinder said Tuesday that political meddling to weaken the dollar by President Donald Trump could create a "swoon" for the currency.

"The problem with talking down the dollar is you may get more than you bargained for," Blinder said on CNBC's "Power Lunch. " "And you can kick off a real swoon that nobody wants, probably including President Trump."

Wall Street analysts now see an increased chance of a weakened dollar through the Trump administration verbally abandoning the traditional strong dollar policy or even possibly buying other currencies. Earlier this month, Trump said the U.S. should "match" alleged currency manipulation by China and Europe.

Blinder said that some talk about a weaker dollar could have only a minor impact, but actions such as directing the Treasury Department to weaken the currency would be a different story.

"A small deviation from the orthodoxy, which is 'never talk about the dollar,' probably doesn't hurt very much," Blinder said. "But if you keep it up and get serious about it, and especially back it up with actions ... then you could be creating a problem."

The U.S. Dollar Currency Index, which measures the value of the greenback relative to a basket of other currencies, has risen more than 3% over the past 12 months.