Donald Trump’s Tariff Policy Forces the Fed to Raise Interest Rates Again

As expected, the US Federal Reserve has raised the target range for the federal funds rate by 0.25 percentage points to 2.00-2.25 per cent. This interest decision marks the third interest rate hike of the year and the eighth increase since the turnaround in monetary policy in 2015. Professor Friedrich Heinemann, head of the ZEW Research Department "Corporate Taxation and Public Finance" at the Centre for European Economic Research (ZEW) in Mannheim, comments on the Fed's latest interest rate decision.

“The determination of the Fed to put an end to its expansionary monetary policy reflects both the strengthening domestic economy and the booming US labour market. On top of this, the new comprehensive US tariffs imposed on Chinese imports are likely to result in more inflationary pressure. As a consequence, US consumers will be the ones to bear the economic burden of Donald Trump’s punitive tariffs in the form of higher prices for Chinese goods. The US President cannot complain about the acceleration of the interest rates hikes; it is his tariff policy that is one of the reasons for the rapid pace of the Federal Reserve.”

For further information please contact

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