A Reaction to Trump’s Far-Reaching Trade Policy

The US central bank Federal Reserve made a turnaround in interest rate policy and lowered its base rates by 0.25 per cent to range between 2.0 and 2.25 per cent. Professor Friedrich Heinemann, head of the “Corporate Taxation and Public Finance” Research Department at the ZEW – Leibniz Centre for European Economic Research in Mannheim, comments on the decision.

“Donald Trump is the real reason for the Fed’s turnaround in interest policy. However, the motives for this decision are quite different from what the US President would like them to be. The decision of Fed Chair Jerome Powell and his colleagues is not a reaction to Trump’s verbal interventions, but to his trade policy, which has far-reaching, and for the US highly damaging, consequences. The Fed’s turnaround is therefore no evidence of political interference. Unlike the ECB, the Fed has created more room to manoeuvre within the scope of conventional interest rate policy in the past few years through targeted interest rate hikes. The Fed is now understandably using this leeway to fulfil its dual mandate of ensuring price stability and economic growth.”