With Cook resisting the move, the immediate onus is on Fed Chair Jerome Powell, as he has the obligation and right to ask the Trump administration, “Show me the legal basis for this action,” Krugman said.
After President Donald Trump kicked up a storm with his announcement late Monday that he was firing Federal Reserve Board Governor Lisa Cook, economist Paul Krugman weighed in on the development.
The economist questioned the legality of the move. “He [Trump] does not have the right to summarily fire Fed officials, certainly on tissue-thin allegations of mortgage fraud before she even went to the Fed,” he said.
With Cook resisting the move, the immediate onus is on Fed Chair Jerome Powell, as he has the obligation and right to ask the Trump administration, “Show me the legal basis for this action,” Krugman said.
Krugman, who served as a member of former President Ronald Reagan’s Council of Economic Advisers, said if the Trump team can’t provide the legal basis, Powell should declare that Cook is still the governor.
The stock market shrugged off the development even as experts and analysts debated the propriety and legality of Trump’s unprecedented move to fire a Federal Reserve official and weighed in on the impact on the central bank’s independence.
On Tuesday, the SPDR S&P 500 ETF (SPY), an exchange-traded fund (ETF) that tracks the S&P 500 Index, gained 0.42%, while the Invesco QQQ Trust (QQQ) rose 0.40%. The SPY and QQQ ETFs have gained 10.74% and 12.30%, respectively, this year.
While sentiment among Stocktwits users remained ‘bullish’ (61/100) on the SPY ETF, with ‘normal’ message volume, the mood toward the QQQ ETF deteriorated to ‘bearish’ (32/100) from ‘neutral.’ The message volume on the QQQ stream declined to ‘normal’ levels.
Krugman warned of ‘profound’and ‘disastrous’ implications if Powell caves on or the Supreme Court “acts supine again and validates Trump’s illegal declaration.”
He likened such a situation to that in Turkey, where an “authoritarian ruler” imposed his “crackpot economics” on the central bank, sending inflation soaring to 80%.
“And the damage will be felt far beyond the Fed. This will mark the destruction of professionalism and independent thinking throughout the federal government,” Krugman said.
The economist clarified that the “for cause” reason Trump stated applied only when a Fed official failed to fulfill their duties or committed an act during their role as governor. The “mortgage fraud” accusation wouldn’t meet the standard for immediate dismissal from the Fed, he added.
Delving into Trump’s rationale behind the move, Krugman said, “The goal of his attempt to fire her is to replace independent Fed officials with lackeys who will take Trump’s orders — not just by getting rid of Cook but by intimidating everyone else.”
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