October 22, 2018

The dual mandate embodied in the Humphrey-Hawkins legislation effectively forces the Fed into a Phillips Curve type of relationship in which case one can argue that the success of the Trump Administration policies is forcing the Fed’s hand to increase interest rates faster than they had previously anticipated. Critics of the Fed, including President Trump, have questioned whether the Fed attempt to crush the incipient inflation predicted by the Phillips Curve would lead to not only a lower inflation rate, but also to a lower real GDP growth rate. Hence if the Fed policy becomes too restrictive, it could derail the Trump economic expansion. That is President Trump’s fear about the Fed interest rate policy.

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