What happens next
By Krugman observes that Lisa Cook has done the right thing by refusing to resign, putting the ball into Jerome Powell’s court next:
Yesterday Donald Trump said that he had fired Lisa Cook, a member of the Federal Reserve Board of Governors. My wording is advisable: He “said” that he had fired her. I’m not a lawyer, but it seems clear that he 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.
Cook has said that she will not resign. So at this point the immediate onus is on Jerome Powell, the Fed chairman. He has the right — I would say the obligation — to say, “Show me the legal basis for this action.” If Trump’s officials can’t provide that basis, he should declare that as far as he is concerned, Cook is still a Fed governor.
If Powell caves, or the Supreme Court acts supine again and validates Trump’s illegal declaration, the implications will be profound and disastrous. The United States will be well on its way to becoming Turkey, where an authoritarian ruler imposed his crackpot economics on the central bank, sending inflation soaring to 80 percent:
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The immediate test here is how the Fed itself responds. Cook is doing the right thing by refusing to resign. Jerome Powell now faces a moment of truth: Will he back her up, until or unless Trump demonstrates that he has the legal authority to fire her?
What if Trump uses some kind of force — deployment of U.S. Marshals? — to block Cook from continuing to work? Good. That will demonstrate to everyone the grotesqueness of this power grab.
And one way or another, this will end up in the courts, where we will find out whether our judicial system has any integrity left.
What will all of this mean for financial markets? The markets keep shrugging off the Trump administration’s lawlessness, and maybe they’ll do it again. But really, it doesn’t matter. This isn’t, ultimately, about monetary policy. It’s about whether we are still a nation of laws.
The markets indeed do not seem to be taking this seriously — one short-term advantage Trump has is that upper-class tax cuts will earn you every benefit of the doubt, which in turn makes him more likely to pursue his lawless ends, while the collective faith in the durability of American institutions is almost certainly misplaced. The Aristocrats!