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

As expected, the US Federal Reserve announced its latest decision to raise the target range for the federal funds rate by 0.25 percentage points to 1.75–2.0 per cent. This is the sixth increase in interest rates since late 2015. Professor Friedrich Heinemann, head of the Research Department “Corporate Taxation and Public Finance” at the Centre for European Economic Research (ZEW), Mannheim, shares his thoughts on the Fed’s decision.

“Under the leadership of Jerome Powell, the Fed is acting as any responsible central bank is compelled to when the economy is facing an increasing risk of overheating. The interest rate hike also serves as a response to ‘Trumpenomics’. The Fed is faced with an administration that is introducing massive tax cuts in the middle of an economic boom and triggering a massive repatriation of corporate profits back to the US. On top of this, there is the Trump administration’s rejection of open markets through new tariffs, which will translate to rising import prices. All these factors are causing inflationary pressures to increase and will force the Fed to raise interest rates again in the future.”

For further information please contact:

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