A Nobel Prize-winning economist has sounded the alarm over President Donald Trump‘s attacks on the Federal Reserve.
Writing in a Substack blog, Paul Krugman, an economic professor at the City University of New York who won the Nobel Prize in Economic Sciences in 2008, warned against Trump’s “unprecedented assault on the Fed’s independence” as the president attempts to influence interest rates.
Why It Matters
In the past few months, Trump has called for Jerome Powell, the chair of the independent Federal Reserve—whom he nominated in 2017—to lower interest rates by 3 percentage points. The president has said lower borrowing costs will boost the economy and reduce the interest the federal government pays on its debt. He has also fired Federal Reserve Board Governor Lisa Cook.
Fed officials believe interest rates should be high to stop inflation from rising. In July, the Fed left interest rates unchanged and maintained the benchmark rate within the target range of 4.25 to 4.5 percent.
What To Know
In his Substack post, Krugman wrote: “Politicians may abuse monetary policy for short-run political gain. … Politicians may take economic advice from cranks who tell them what they want to hear. Trump epitomizes both dangers.”
He said the U.S. looked like it would soon be experiencing mild stagflation, when unemployment and inflation rates were both too high.
Krugman said that would pose a dilemma for the Fed because raising interest rates could increase unemployment while cutting them could worsen inflation.
Generally, and particularly in such a situation, it is important for the Fed to be independent, Krugman said, adding that “independence limits the scope for irresponsible policy.”
The Nobel winner described the president’s desire to cut interest rates as “crazy and irresponsible.”
“A Trump takeover at the Fed would cause long-term rates to rise rather than fall,” Krugman wrote.
“It’s important to protect the independence of the Fed in order to assure the stability of the economy and financial markets,” he said.
Other leading voices have warned Trump against trying to influence the Federal Reserve. Christine Lagarde, the president of the European Central Bank (ECB), told French radio that if the Fed was no longer independent, it would pose a “very serious danger” for the world economy.
Still, some have indicated support for Trump’s policy. Last month, Liz Truss, who served as British prime minister for 49 days—the shortest tenure in the country’s history—said, “I think there is a reckoning coming for the central banks, not just in Britain but also in the United States, also the ECB.”
What People Are Saying
President Donald Trump wrote on Truth Social on August 1: “Jerome ‘Too Late’ Powell, a stubborn MORON, must substantially lower interest rates, NOW. IF HE CONTINUES TO REFUSE, THE BOARD SHOULD ASSUME CONTROL, AND DO WHAT EVERYONE KNOWS HAS TO BE DONE!”
Federal Reserve Chair Jerome Powell said at a European Central Bank forum in Portugal on July 1: “I’m very focused on just doing my job. The things that matter are using our tools to achieve the goals that Congress has given us: maximum employment, price stability, financial stability. And that’s what we focus on 100 percent.”
What Happens Next
The Fed’s next interest rate decision takes place in September.
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