Higher US Interest Rates to Become a Stress Factor for the Global Economy in 2019

The US Federal Reserve announced its latest decision to leave the federal funds rate in a target range of 2.00–2.25 per cent and made no update to their forecasts. Professor Friedrich Heinemann, head of the Research Department “Corporate Taxation and Public Finance” at the Centre for European Economic Research (ZEW), Mannheim, offers his view on the matter.

“Until further notice, the Fed will continue to pursue its course to raise interest rates on a quarterly basis. The outcome of the US congressional elections does not provide arguments for slowing down rate hikes. On the contrary, the split Congress could cause government spending to increase even further. US President Donald Trump will have to buy Democratic support for controversial projects by increasing budgets for health care and social matters. Fiscal policy is thus likely to become even more expansive. In order to absorb the rising inflationary pressure, however, monetary policy will have to react all the more promptly. The global economy must prepare itself for the fact that the rising US interest rate level will become a major stress factor again in 2019.”

For further information please contact

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