The US is risking a dark descent into hyperinflation of the type experienced by Turkey due to Donald Trump’s insistence on bringing in lower policy rates, Paul Krugman, the 2008 winner of the Nobel economic sciences prize, wrote on April 18 in his blog.
Lately, President Trump has been increasing the pressure on Fed governor Jerome Powell to cut the US policy rates.
Since November, when Trump won his second term in the White House, bne IntelliNews has been cautioning that Trump will “definitely be inflationary”.
“He will push the Fed to cut rates more extensively and pump in more liquidity,” this publication noted on November 10.
Krugman, a New Keynesian economist, warned in his blog post: "The reason we don’t want politicians in direct control of monetary policy is that it’s so easy to use. After all, what does it mean to 'ease' monetary policy? It’s an incredibly frictionless process. Normally the Federal Open Market Committee tells the New York Fed to buy U.S. government debt from private banks, which it does with money conjured out of thin air. There’s no need to pass legislation, place bids with contractors, deal with any of the hassles usually associated with changes in government policy. Basically the Fed can create an economic boom with a phone call."
'Trump-like president'
He added: "It's obvious that this kind of power could be abused by an irresponsible leader who wants to preside over an economic boom and doesn’t want to hear about the risks. This isn’t a hypothetical scenario. Consider what happened in Turkey, whose Trump-like president, Recep Tayyip Erdogan, recently arrested the leader of the opposition. When the global post-Covid inflation shock hit, Erdogan embraced crank economic theories. He forced Turkey’s central bank, its equivalent of the Fed, to cut interest rates in the belief, contrary to standard economics, that doing so would reduce, not increase inflation. You can see the results in the chart at the top of this post [see below in the case of this article].”
Krugman’s chart shows Turkey’s official consumer prices index (CPI).
