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ifo Researcher Potrafke: Trump’s Meddling in Interest Rate Policy Likely to Fail

Summary:
US President Donald Trump’s attempts to get the Federal Reserve to lower interest rates are likely to fail. For the period from 1972 to 2010, the ifo Institute examined how interest rates developed under right-wing and left-wing governments in industrialized countries. “The central banks do not seem to have bowed to the politicians,” says Niklas Potrafke, head of the ifo Center for Public Finance and Political Economy. “On the contrary, in the 1990s, especially independent central bankers under left-wing governments raised interest rates particularly sharply.” On Tuesday, Trump had asked the US Federal Reserve to cut interest rates by a full percentage point. But his wish was not granted. Potrafke added that the situation is particularly

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US President Donald Trump’s attempts to get the Federal Reserve to lower interest rates are likely to fail. For the period from 1972 to 2010, the ifo Institute examined how interest rates developed under right-wing and left-wing governments in industrialized countries. “The central banks do not seem to have bowed to the politicians,” says Niklas Potrafke, head of the ifo Center for Public Finance and Political Economy.

“On the contrary, in the 1990s, especially independent central bankers under left-wing governments raised interest rates particularly sharply.” On Tuesday, Trump had asked the US Federal Reserve to cut interest rates by a full percentage point. But his wish was not granted. Potrafke added that the situation is particularly paradoxical for Trump. “It is unusual for a Republican president to press for low interest rates. Up to now, the Republicans have mainly nominated hawks to the US Federal Reserve, which means they were more in favor of higher interest rates.” This, says Potrafke, is another example of how Trump breaks with the ideas of his own party. “The same applies to trade policy, because protectionist tendencies are more widespread among Democrats than among Republicans.”

Publication

  1. Cahan, Dodge, Luisa Dörr and Niklas Potrafke, "Government ideology and monetary policy in OECD countries", Public Choice, Forthcoming, Information | Details

Clemens Fuest
Clemens Fuest took over from Hans Werner Sinn as chairman of the IFO Institute in April 2016. He is professor at the Faculty of Economics of the University of Munich.

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