A Nobel Prize-winning economist is warning about President Donald Trump’s growing pressure on the Federal Reserve.
In a post on his Substack blog, Paul Krugman, a professor at the City University of New York who won the Nobel Prize in Economics in 2008, said Trump is mounting an “unprecedented assault on the Fed’s independence” as he tries to push for lower interest rates.
Why It Matters
Over the past few months, Trump has urged Federal Reserve Chair Jerome Powell—whom he appointed in 2017—to cut interest rates by three percentage points. He argues that cheaper borrowing would help the economy and lower the federal government’s interest payments on its debt. Trump also recently fired Federal Reserve Board Governor Lisa Cook.
The Fed, however, has kept rates high to fight inflation. In July, officials left rates unchanged, keeping the benchmark range at 4.25 to 4.5 percent.
What To Know
Krugman warned that politicians often misuse monetary policy for short-term political gain and sometimes rely on bad economic advice that fits their agenda. He said Trump represents both of these risks.
The U.S., Krugman said, may soon face mild stagflation—when inflation and unemployment are both too high. That puts the Fed in a tough spot: raising rates could worsen unemployment, but lowering them could drive inflation higher.
Because of this, Krugman stressed that the Fed’s independence is crucial. He called Trump’s push to slash rates “crazy and irresponsible,” adding that a Trump-led takeover of the Fed could actually make long-term borrowing costs rise.
“It’s important to protect the independence of the Fed in order to assure the stability of the economy and financial markets,” Krugman wrote.
Other experts have also spoken out. Christine Lagarde, president of the European Central Bank, said losing Fed independence would be a “very serious danger” for the global economy. But not everyone agrees—former British Prime Minister Liz Truss said central banks in the U.S., Britain, and Europe all face a “reckoning.”
What People Are Saying
On August 1, Trump wrote on Truth Social: “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!”
Meanwhile, Powell has stayed focused on his role. Speaking at a European Central Bank forum in Portugal on July 1, he said: “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 Federal Reserve’s next decision on interest rates will be announced in September.
