A Nobel Prize-winning economist warned on Sunday that President Donald Trump's "obsession" with assuming control of the Federal Reserve could have significant impacts on the American economy.
Paul Krugman, who won a Nobel Prize in 2008, argued in a new Substack essay that Trump's attacks on the central bank seemed designed to "personally intimidate" its leadership. For instance, Trump's Department of Justice has accused Federal Reserve governor Lisa Cook of committing mortgage fraud, although media reports indicate members of Trump's cabinet have used the same mortgage arrangement.
Trump also visited the Federal Reserve headquarters renovation project, where he attempted to claim costs for the project had ballooned under Chairman Jerome Powell. Powell sharply fact-checked the president on camera during the tour.
Krugman argued that Trump's actions to reduce the central bank's independence could have a negative impact on the American economy going forward
"Donald Trump wants to destroy the independence of the Federal Reserve and assume personal control of monetary policy," Krugman wrote. "It’s clearly an obsession with him and his efforts just keep getting more extreme."
"Why is Trump demanding this?" Krugman asked. "In answering that question, one should never rule out the role of sheer ignorance."
"Trump may imagine that lower short-term interest rates will lift him in the polls, while ignoring the high likelihood that such a steep fall in short-term interest rates will raise expected inflation and, as a result, long-term rates will go up, not down," Krugman continued. "And sometimes he seems to think of interest rate reductions as a sort of trophy, like an award you get for supposedly winning a golf tournament."
The law could become a hurdle for Trump as he continues these efforts, Krugman suggested. But it remains to be seen whether it will prevent him from accomplishing his goal altogether.
"Unless the Supreme Court is more in Trump’s back pocket than is already evident, I don’t Trump will prevail in firing Cook," Krugman argued. "But his over-arching goal, clearly, is to personally intimidate Fed officials — 'get in our way,' the White House is saying, 'and we will ruin your life.'"
