For Dollar Fears, Bush Prescribes Lower Deficit and Higher Rates; President Tells Berlusconi That It's Up to Markets To Set Currency's Value
President Bush said a lower U.S. budget deficit and higher interest rates are the answer to Europe's worries about a weak dollar, but that the markets get the final say.</br></br>Mr. Bush's remarks appeared aimed at U.S. trading partners' concerns over the economic damage of a weak dollar, which makes their goods less competitive in the U.S. But he offered nothing new to support the dollar.</br></br>"We believe that the markets should make the decision about the relationship between the dollar and the euro," Mr. Bush said after Italian Prime Minister Silvio Berlusconi raised the issue in an Oval Office meeting. Indeed, as the two met, the dollar weakened on news that foreigners cut back their purchases of U.S. stocks and bonds. The U.S. has been relying on such purchases to finance its budget deficits and consumer spending.</br></br>Mr. Bush did add that he would try to bring about "the conditions such that a strong dollar will emerge" by doing "everything we can in the upcoming legislative session to send a signal to the markets that we'll deal with our deficits, which hopefully will cause people to want to buy dollars." The dollar showed little reaction after Mr. Bush's comments. (Please see related articles on pages C1 and C5.)</br></br>In an unusual remark, Mr. Bush added that the Federal Reserve had, under "Alan Greenspan, raised the interest rates yet again, a signal to the world markets that the chairman is also aware of the relative currency valuations between the euro and the dollar." The Fed raised its overnight interest-rate target to 2.25% from 2% Tuesday, its fifth consecutive quarter-point increase this year.