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Vienna. Donald Trump is not fussy. Its "America First" policy threatens to drag the world into a global trade war. As if that were not enough, the US president has now repeatedly attacked his own central bank. In an interview, he turned against the Federal Reserve. He was "not enthusiastic about rising rates," Trump said. And: He does not like "that we put the job in the economy, and then I see how interest rates are going up."
Such statements cause uncertainty. Many already see the independence of the central bank in danger. In addition, because Trump derailments could cause the Fed to raise its interest rates further to signal its independence.
Given the strength of the US economy, the monetary policy of the central bank is entirely justified. Inflation has recently reached its highest level in seven years, with the unemployment rate falling to its lowest level in 40 years. It is precisely these two factors that normally make central bankers dependent on their approach. In order to keep the economy from warming up, the Fed had to react in the past. In 2015, she rang the interest rate turnaround, her approach up here has been sweet, she does not want to stall the recovery.
The United States is more attractive than Europe
Since Trump became president of the United States, the intervals between interest rate movements have become shorter. The US interest rate has increased fivefold over the last year and a half. Currently, the range is between 1.75 and 2 percent. Analysts anticipate two new interest rate movements in 2018. It is only Wednesday that Trump President Jerome Powell reiterated that interest rates should continue to rise gradually. According to the Commerzbank badyst, Esther Maria Reichelt, you can already reach 2.5% by the end of the year.
That's the reason the US dollar is currently downwind. Since January, the currency has appreciated about three per cent against the euro. Investors around the world are receiving higher interest rates in the United States than in Europe, where the central bank has yet to put an end to its accommodative monetary policy. Experts expect the first increase since the financial crisis, no earlier than mid-2019. The dollar should therefore remain strong until further notice, says Reichelt, an badyst at Commerzbank. For it's only when investors see the potential of the depleted dollar that they will invest elsewhere. Before that, Europe remains less attractive as an investment market.
However, if the dollar is too strong, exports to US companies will become more expensive. It's also a problem for Trump, because the United States would be at a disadvantage, he says. That's one of the reasons he threatened to pay more than $ 500 billion in tariffs on China yesterday (see page 13).
But tariffs on imports would only lead to an increase in inflation that would force the Fed to act. So, for example, barriers to importing for cars would be felt relatively quickly, while they could be intercepted with marginal products for preliminary products for now, says Reichelt. The tax reform in the United States, which was decided before Christmas, would also be inflationary, says Reichelt. In the end, the Fed would only be able to raise interest rates.
("Die Presse", printed edition, 21.07.2018)
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