Paul Krugman this weekend issued a damning critique of what he described as Donald Trump’s “obsession” with seizing control of the Federal Reserve and its monetary policy.
“For my sins, I actually do, fairly often, look at Trump’s Truth Social feed, and this is not a guy I would allow within three miles of making monetary policy. This is just horrifyingly irresponsible,” the renowned economist told MSNBC’s Ali Velshi.
Krugman, the 2008 winner of the Nobel Memorial Prize in Economic Sciences, noted how America is currently experiencing “at least a mild case of stagflation,” when high inflation combines with stagnant economic growth and rising unemployment. Friday’s jobs report was not good news for Trump.
The Fed will “for sure” cut interest rates — as Trump is demanding — next month, he predicted. But that won’t “fix the underlying problem” or “deliver the kind of wonderful economy that Trump claims we have,” he warned.
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Stagflation usually results from external pressures, said Krugman. But during Trump’s second term it’s “all self-generated … self-inflicted. This is ‘Trump-enomics’ has done this to us,” he said.
Krugman expanded on the theme in the latest issue of his Substack newsletter, arguing that when explaining Trump’s reason for slashing rates “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,” he wrote. “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.”
“But there is another reason that might explain why Trump wants to end the Fed’s independence — and this reason makes economists very, very nervous,” he added. “For it’s likely that Trump is seeking to establish ‘fiscal dominance’ of monetary policy — a policy regime in which the Fed’s actions are dictated, not by an effort to achieve low inflation and full employment, but by the desire to avoid hard choices on taxes and spending.”
Read Krugman’s full analysis on Substack.