- The Washington Times - Monday, May 12, 2003

U.S. Treasury Secretary John W. Snow reiterated the Bush administration’s support for a strong dollar yesterday, after a week in which the dollar fell to its lowest point against the euro in four years.

Speaking on several talk shows yesterday morning, Mr. Snow downplayed comments by Federal Reserve Chairman Alan Greenspan that the weak dollar could lead to deflation. But Mr. Snow said he favored plans by the Bush administration to prop up the dollar through a package of tax cuts.

“There’s a market for the dollar,” Mr. Snow said on “Fox News Sunday.” “And the best thing we can do to have a strong dollar is to see that the fundamentals of the economy [remain] strong and that’s why, again, we come back to the president’s jobs and growth plan.”

The House of Representatives Friday passed a $550 billion, 10-year tax-cut package. The package is about $175 billion less than what President Bush had sought, but enough, Mr. Snow said, to spark a gradual improvement in the nation’s economy.

U.S. manufacturers and farmers generally have supported a weaker dollar, because it makes it more profitable for them to sell their products outside the United States.

But U.S. Treasury officials usually have supported a strong dollar because it lowers the cost of foreign goods for consumers and encourages foreign investment in U.S. companies.

The euro is now worth about $1.15, nearly the same as when the currency was introduced in Europe in 1999. The dollar has fallen about 22 percent against the euro and 10 percent against the Japanese yen in the past 12 months.

Investors took $418 million out of U.S. stocks in the week ending May 2, compared with a gain of $93 million for European stocks, USB Warburg reported.

Analysts said the euro fell last week because of speculation that the Federal Reserve would cut interest rates in order to inject life into the economy. The Fed did not cut rates, but also did not rule out cutting them in the future.

A Bloomberg News survey Friday showed that investor interest in the dollar was waning. Two-thirds of the 38 traders, analysts and investors surveyed said they recommended the euro over the dollar.

“Interest rates are very low, which is helping to divert capital to other places,” Lyle Gramley, a former Federal Reserve governor, said in an interview with Bloomberg News. “That’s putting pressure on the dollar.”

Mr. Gramley, now an economic adviser with Schwab Capital Markets in Washington, said he expects weakness in the economy could drive down the dollar another 5percent against the euro.

Mr. Snow said an improvement in the economy, triggered by heavy tax cuts, would lead to a stronger dollar. The economy grew by about 1.6 percent in the first quarter of this year. Mr. Snow told Fox News that a $550 billion cut would help the economy reach a 3.5 percent growth rate by the end of 2004.

Mr. Snow said the administration will “not be satisfied unless we have the biggest number we can get that creates the most jobs,” but he added that a tax cut of between $400 billion and $550 billion “can do a lot of good to create jobs in America.”

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