The article makes reference to the conflictbetween Donald Trump and Fed Chairman, Powell. While the Fed Chairman is in support of the decision to raise the interest rates, Donald Trump remains adamant that the measures would propel economicgrowth in the country.  Recently, the FederalReserve has been raising the interest rates despite the fact that the inflation levels have been low.

Since the undertaking to normalize the interest rates in 2015, the Fed has made several changes in the rates. The recentmove has been the raising of the rates from 2.25% to 2. 5%. However, the move is seen to alarm Donald who worries that the Fed may consider making another raise.  From an economist standpoint, the raise is a deviation from the 2% symmetric objective theyear.

The Fed maintains that the move was in line with the trajectory economic growth, inflationrates, and the labor markets.  Other than these elements, interest rates have direct impacts on saving investment levels. Investorsremain unaware of the direction of the Open MarketCommittee.  Past economic analysisindicates that the Fed is contemplating three possible increases in both 2019 and 2020.

It is these events that create the worry that the Fed is moving too fast and may affect some spheres of the economy. Not only have stock indexes moved to the correction territory, but they have also recorded a negative progression in the first quarter of 2019.  An example is the Dow Jones Industrial Average which recorded 352. The points are asignificant drop from the initial 733- points.  Rises and falls in the interest rates reflect different changes in the economy.

During a recession, the Fed may adoptmeasures that intend to lower the interest rates with the objective of increasing the creation of more jobs.  The lowering of interest rates is a stimulus package that encourages spending in the markets as well as fostering girth. The case has been evidentsince the 1990s where the Fed has ensured that the interest rates remain low. However, the year 2015 saw a shift in this approach as there has been a consistent increase in the rates.

Interest Rates

7%

(Marginal efficiency of Capital)

5%

80%            100                          Quantity of Investment

The graphindicates that a rise in the interest rates to7% would correspond to a reduction in investment levels by 20%. The Fed notes that the economy is strengthening hence the need to increase the interest rate in a move to curb a possibleinflationscenario. It is an indication that the country is moving out of recession.  While Donald Trump is keen on making the country have a better economy, there is the worry that the interest rates will lower the level of economic growth.  In most cases, adjustments on the interest rateare due to the prediction of a rise in the level of inflation.

The move by Powel to raise the rates is thus a way to moderate the economic growth levels. Interest rates have the effect of causing an equal increase in the cost of borrowing and also lowers disposable income. The move creates the fear that both consumption and investment levels in the country will be disrupted. A limit in the consumer spending level is a deterrence to the investors and thus creates the risk of stagnating the economicgrowth levels.

Focusing on the insights by DonaldTrumpindicates that while he agrees that a review of the interest rates is vital, the changes are occurring at an increasingly high speed.  While the Fed focus on the positive elements such as the increased levels of return on savings and reduction in house process, there is the risk of having lower investments levels, an appreciation in the exchange rates and reduction in the consumption levels. It is worth noting that any attempt to lower the inflation level has the unintended consequence of lowering the economic growth rates.

I agree with the view expressed by Donald Trump on the rate of interest rates in the country. While the Fed is charged with the duty of stabilizing the economy, I believe that there are no alarmingeconomicindicators. In 2018, inflation was at 2.54%. Although this a rise in the inflationlevel s compared to 2.14% in 2017, other factors can stabilize the economy without the radical increase in the interest rates. The Fed only focuses on the consumption and inflationlevel but fails to consider other sectorssuch as investment and repayment of loans.

There is the danger that another increase in the interest rates will make loans and house mortgage more expensive. Consequently, there are chances of increased defaults thus creating a possible re-occurrence of the 2008 housing bubble crises. The progression of the USA economy is tied to the ability to attract more investors. More investments imply that there will be the creation of more jobs and growth in the GDP levels. While there are many divergent views,  interest rates are sensitive and may derail the economic aspirations of the country hence the need to make informed decisions.

Work Cited

Akram, Q. Farooq. “Commodity prices, interest rates, and the dollar.” Energy Economics 31.6 (2009): 838-851.

Becker, Gary S. Economic theory.Routledge, 2017.

Diaz, David, BabisTheodoulidis, and Carlos Dupouy. “Modelling and forecasting interest rates during stages of the economic cycle: A knowledge-discovery approach.” Expert Systems with Applications 44 (2016): 245-264.

Harvey, David I., et al. “Long-run commodity prices, economic growth, and interest rates: 17th century to the present day.” World Development 89 (2017): 57-70.

Lee, Kang-Seok, and Richard A. Werner.”Reconsidering monetary policy: An empirical examination of the relationship between interest rates and nominal GDP growth in the US, UK, Germany, and Japan.”Ecological Economics 146 (2018): 26-34.

The president says he is not happy with Fed Chairman Jerome PowellBy  Kate Davidson Updated Oct. 17, 2018, 6:09 a.m. ET

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