The Federal Reserve has been wise to keep the dollar weak as the economy navigates its way through the current liquidity shortage, the former chairman of the central bank's Dallas branch said.
Robert McTeer, a fellow at the National Center for Policy Analysis, said on "Squawk Box" that he prefers a stronger dollar but the time isn't right for the greenback to regain its strength.
"I want a strong dollar but not just yet," McTeer said. "Right now the weak dollar is causing imports to be restrained, exports to grow very rapidly. In the third and fourth quarter net foreign trade was a positive to GDP, especially in the third quarter."
Despite worries that the Fed's aggressive rate-cutting policy will aggravate inflation, McTeer said the central bank did the only thing it could given the problems with liquidity and the credit crisis in the banking industry.
"Inflation is a problem and it will become more of a problem, but the Fed can only do one thing at a time. It can either ease or tighten," he said. "We had an emergency, we still have an emergency in our financial markets and if it wasn't handled right could lead to a depression, and I think the Fed was right to put inflation on the back burner while it dealt with this."
McTeer said he believes data will show the economy in a mild recession, the impact of which will be lessened by low interest rates and easier access to money.
"I'm for a strong dollar. It tends to hold prices down and it keeps producers' feet to the fire, but right now we need the stimulus, plus we also need to stop the hemorrhaging of dollars abroad and we need to correct that current account deficit or at least shrink it," he said. "I want a strong dollar based on trade and not a strong dollar based on interest rate differential and money capital flows."