Over the last several years, anti-Fed "policy bears" have been warning about how the extraordinary steps taken to juice the economy would end in disaster.

Some predicted surging interest rates. Some people predicted runaway inflation. And a lot of folks said that the Fed was murdering the dollar.

Well, none of that has happened. And not only that, the dollar is one of the strongest currencies in the world.

In the chart below, the dollar is the red line (more on the blue line in a moment). As you can see, the dollar (as measured against other major currencies) is on a gigantic tear, and it's at multi-year highs.

The reason for the rally can be found to some extent in the blue line, which is a measure of short-term interest rates.

Short-term interest rates have been trending higher this year, as it looks more and more like we'll have another rate hike in the future. Some people are predicting the first rate hike could come early next year.

When U.S. interest rates rise (especially when they're rising to rates in other countries) holding the dollar becomes more compelling, because basically you're getting paid to carry them.

U.S. policy hasn't been perfect, but we're seeing how smart the U.S. was to ease aggressively early and hard (it could have been harder). Some of our biggest economic counterparts (the Eurozone and Japan) have way further to go. No wonder the U.S. dollar is on the rise.



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