Interest Rate Hike to Depress US Energy Prices with Uncertain Benefits

A former Vice Chairman of the Federal Reserve Board of Governors said that if the Fed increases interest rate, it will negatively impact energy producers and consumers in the United States, following recent global energy prices decrease.

WASHINGTON (Sputnik), Leandra Bernstein — A Federal Reserve (Fed) interest rate increase will negatively impact energy producers in the United States, with uncertain benefits on consumption, former Vice Chairman of the Federal Reserve Board of Governors Ronald Kohn told Sputnik.

"They [the Fed governors] need to make a judgment about what the lower energy price might mean for the United States," Kohn said of a possible interest rate hike.

Raising the US borrowing rate "will damp capital spending in the energy industry," he explained.

During the previous drop in oil prices in mid to late 2014, Federal Reserve Chairman Janet Yellin said the lower energy prices would have a positive impact on US consumers.

Kohn observed that the net effect of the earlier drop in oil prices "did not have as much of a positive impact on consumption as people thought it might."

However, it did have a "very negative" impact on domestic US investment, he added.

In recent months, global energy prices have remained depressed, with crude oil trading below $50 per barrel since July.

If the Federal Reserve decides to raise interest rates at the September meeting of the Federal Open Market Committee, it could further depress energy prices, Kohn argued.

"In general, higher interest rates tend to reduce, or stop the increase in commodity prices," he said.

Global oil production is currently exceeding the demand and has led to a sharp decrease in prices. The lower cost of energy has led to major oil companies canceling up to $200 billion in projects worldwide, according to a recent study by the energy consultancy group Mackenzie and Wood.