ECONOMIC REPORT OF THE PRESIDENT

Figure 2-42
Real Broad Trade-Weighted Dollar, 1973–2016
Index, March 1973=100
130
120
110
Appreciation
of U.S. Dollar
100
Nov-2016
90
80
Real Trade-
Weighted
Dollar
70
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Note: This index is a weighted average of the foreign exchange values of the U.S. dollar against major
U.S. trading partners. The dotted line represents the 1973-2016 average. Shading denotes recession.
Source: Federal Reserve Board.
consistently fallen short of expectations, as the long-term growth forecasts
have flattened and medium-term risks have deepened.
As discussed above, the slowdown in global growth has been a headwind
for the U.S. economy, dragging on real export growth. As global growth
and the appreciation of the dollar have stabilized, however, real exports have
grown 2 percent in the four quarters ended in 2016:Q3. Still, global growth
is below expectations and there appears to be room for more growth in
many countries. That is why it is critical for economies around the world to
coordinate efforts focused on promoting growth, undertaking the necessary
steps to expand demand, increase investment, encourage trade, and manage
economic and financial developments as appropriate in different contexts.
Global Headwinds and Trade
Starting in July 2014, the dollar entered a period of sustained real
appreciation, increasing by 17 percent through December 2015, according
to the Federal Reserve’s broad real dollar index. Such a major wave of dollar
appreciation has occurred only twice before since the dollar began to float
freely in 1973 following the collapse of the Bretton Woods fixed exchange
rate system. In 2016, the dollar was largely stable for most of the year but
appreciated 2.3 percent on a trade-weighted basis in November (Figure
2-42). The limited appreciation of the trade-weighted exchange rate so far
in 2016 obscures some larger bilateral moves in the dollar, with appreciation
132 | Chapter 2