There could also be reason at some point to indicate that the market's pricing has moved significantly out of the region considered reasonable. For instance, this was the case, as I understand it, when the ECB intervened last autumn. In these cases the central bank can take action to "nudge" or reinforce a trend in the market without actually establishing any ceiling or floor. In my opinion, however, one should be restrictive in the use of such interventions. If the trend should turn and move in the opposite direction, the intervention might do more harm than good. Is it good for Sweden if our currency is undervalued over a long period of time? All experience indicates that this is not so. Although an undervalued currency gives the export industry and importcompeting industry a competitive advantage, which may sound positive in the short term, it reduces competition pressure and in the longer perspective it delays the structural transformation necessary when the exchange rate eventually returns to a balanced level. At the same time, the import industry has an uphill struggle, which leads to companies being wiped out in this sector that would have not have collapsed with a correctly valued currency. In addition, major fluctuations in themselves have a subduing effect on developments as the risks increase on all international transactions. This can be counteracted to some extent through hedging, but hedging also has a price that rises as uncertainty increases.
The figures from the labour market also look gloomy and leading indicators are retreating. Although the stock exchange has shown an upturn in recent weeks, it is still very volatile and the household sector's burden of debt is continuing to increase. Leading economists have ceased talking of a V-shape when they describe economic developments. The upturn will come, but it will probably take longer than was estimated a month or so ago. This is what one should bear in mind when regarding the four American interest rate reductions of a total of 2 percentage points during the spring, two of them outside of the normal Federal Reserve Board meetings. It is hardly likely that the Fed knows something they have not told the market, which is what is sometimes implied by analysts. This is not the way a central bank works. However, the American economy came to a standstill more quickly than expected and the Fed probably fears that the unease on the financial markets will frighten away both investors in real capital and consumers from spending their money. This fear is certainly justified. Then, of course, one can feel some hesitation over the fact that monetary policy is taking on the role of short-term saviour of the American consumers, who can thus carry on consuming beyond their incomes for some while longer, i.e. with a negative savings ratio.