Yellen Is Leaving the Fed in Good Shape

In Janet Yellen’s last meeting as chairwoman, the US Federal Reserve decided to leave the federal funds rate unchanged. After a rate hike in December 2017, the Federal Open Market Committee has decided to keep its benchmark rate in a range between 1.25 and 1.5 per cent. 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 decision:

“The US tax reform will lead to a further increase in growth. The mounting tensions in the US labour market won’t leave Jerome Powell, Yellen’s successor, any choice but to raise the interest rate various times over the course of this year. Yellen, however, is leaving the Fed in good shape, making it easier for Powell to tackle this task. Under Yellen, the Fed did not only end the zero-rate policy and its bond purchases, it has also begun to shrink its asset holdings. Now with Powell as the Federal Open Market Committee’s new chair, the Fed will once again be able to focus on a more conventional interest rate policy. With the European Central Bank remaining in crisis mode by sticking to its bond-buying programme and negative interest rates, the contrast between the US and the Eurozone could not be greater in terms of monetary policy.”

For further information please contact:

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