Donald Trump’s Failures Buy the Fed More Time

The Federal Reserve decided to keep its interest rates unchanged in July after it hiked its benchmark rates up to between 1.0 to 1.25 per cent one month ago. The central bank announced it would begin rolling back its massive balance sheet “relatively soon”. However, it still remains unclear when exactly this will be. Professor Friedrich Heinemann, head of the Research Department “Corporate Taxation and Public Finance” at the Centre for European Economic Research (ZEW) in Mannheim, offers his view on the Fed’s decision.

“The Fed is in no hurry to raise interest rates back to normal levels. This is partly due to the recently published disappointing US economic data. Another reason is the growing awareness that Donald Trump’s comprehensive plans for the US economy hardly stand any chance of being implemented anymore.

If Trump’s revolutionary reform of the tax system as well as his large-scale debt-financed spending programmes are to fail, growth expectations for the US economy will diminish. This averts both the danger of overheating as well as the threat of rapidly increasing inflationary pressure. The apparent failure of ‘Trumpenomics’ buys the US Federal Reserve more time to slowly raise its interest rates and gradually shrink its balance sheet.”

For further information please contact

Prof. Dr. Friedrich Heinemann, Phone +49 (0)621/1235-149, E-mail friedrich.heinemann@zew.de