The US Federal Reserve System (Fed) left its key interest rate unchanged, in a range of 0.50 percent to 0.75 per cent, in its most recent policy meeting. In December 2016, the US central bank had raised its benchmark interest rate by 0.25 per cent. Professor Friedrich Heinemann, head of the ZEW Research Department "Corporate Taxation and Public Finance" at the Centre for European Economic Research (ZEW), comments on the Fed's decision.

"The Fed remains faithful to its monetary policy strategy. The central bank's first statement since Donald Trump took over as president is of particular importance, as Trump's position on monetary policy is highly contradictory. While during his presidential campaign he demanded the Fed to raise its interest rates, he now plans to increase US exports through a weak dollar. A faster pace of rate hikes, however, would be detrimental for this plan to go through.

Janet Yellen does well to send a clear message against the stark unpredictability of Trump's economic policy. The Fed has once again established that it will counter if the Trump administration leads the US economy into overheating as a result of badly timed investment programmes. Such a clear positioning is balm for the stock markets, which are increasingly unsettled by the chaotic policy pursued by the White House. The United States under Trump provide yet another proof of the importance of central banks to remain independent from politics."

For further information please contact:

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

Date

01.02.2017

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