Sputnik: What is behind Jerome Powell's decision to constantly raise interest rates?
Judd W. Patton: The Fed has pushed interest rates very low in past years as a way to stimulate the economy. Now that the economy is doing fairly well, they hope to raise interest rates slowly without harming business borrowing (Investment) and thus the good economy can continue.
With interest rates so low it is difficult for the Fed to use interest rates as a monetary policy tool. So you see they have been looking for "good times" to raise interest rates so that they can once again manipulate rates to conduct monetary policy. So expect the Fed to raise interest rates into 2019. If a recession occurs, they will stop doing so, for sure.
Sputnik: Do you think Powell's goal is to cool down the US economy without cheap credit?
Judd W. Patton: No. The whole purpose of the Fed is to manage the money supply (print money). Yes, they do it at different rates of expansion. Nevertheless, they avoid deflation (lowering the money supply) at all costs today. So expect inflation and credit expansion as the norm. They even announce their policy to have an annual two percent increase in the CPI Index. That only happens with inflation (printing money, or an expansionary monetary policy). I don't believe the Fed wants to cool down the economy.
Sputnik: Could Trump influence the Federal Reserve's decisions (via Twitter or other mechanisms) or will the Fed try to maintain its neutrality?
Judd W. Patton: No, I really doubt it. The Fed loves its independence. Still, at their board meetings, they may take into account Trumps criticism. Who knows?
Sputnik: It's been reported that Trump felt unhappy about Powell and Mnuchin's recent economic decisions. Do you think we could see any resignations?
Judd W. Patton: No, again I doubt it. Mr Trump could put pressure on Mnuchin and even replace him at the Treasury, but that seems unlikely. The Treasury does not conduct monetary policy. They just manage the finances of the Federal government. Powell is safe at the Fed.
Sputnik: During the last month, oil markets have collapsed and dropped nearly 25% in value. How could this impact the US economy?
Judd W. Patton: It's great to have lower costs and prices for any resource. Especially oil and gasoline! It will be a boon for consumers and other businesses as they have more money to spend elsewhere in the economy. Of course, the oil industry and related businesses will receive less revenue, affecting their decisions. But overall they will continue to be profitable. Lower prices are fantastic for consumers. Businesses will adjust to the price and cost data. That's how capitalism works. There will be winners and losers, but overall the economy will grow in response to lower resource prices.
Sputnik: What kind of economic policies could Donald Trump use after the midterm elections and the Democrats gain control of the House of Representatives?
Judd W. Patton: President Trump should continue the policies he has been pursuing since day 1: lower taxes, control the southern border (build a wall), replace Obamacare with free-market care, especially begin to reduce Federal government spending, and tell the Fed to cease and desist printing any money to stop inflation and let interest rates go to whatever the market will determine. Of course, the Fed doesn't have to listen to him! By the way, Mr Trump does not have the economic (Austrian) understanding to end inflation, and the other policies he should pursue will be very difficult to accomplish with divided government.
The views expressed in this article are those of the speaker and do not necessarily reflect those of Sputnik.