The direction of the dollar is an aspect of the larger context of slow global growth with risk of spillover to the U.S. economy. Some of the influence of soft economic conditions abroad is incorporated into my baseline outlook. In contrast, more extreme scenarios are not. I should also comment on inflation compensation in inflation-protected securities.
Compensation for inflation in these securities (so-called TIPS) has moved sharply lower since last summer. This decline may reflect transitory influences like falling energy costs. A less benign possibility is that investors are lowering their outlook for inflation.