Former Treasury Secretary Larry Summers on Wednesday warned that the United States is heading towards a “credibility crisis” due to President Trump’s moves to influence the Federal Reserve.
“We’re on the foothills of a credibility crisis,” Summers said during a Wednesday appearance on Bloomberg Television’s “Wall Street Week” with David Westin. “We are in completely unprecedented territory.”
Summers, a professor at Harvard University and paid contributor to Bloomberg News, criticized the president for his “harsh rhetoric” surrounding Fed Chair Jerome Powell and campaign to convince the Fed to cut interest rates.
“This is an attack on the governance of the institution,” Summers said.
Summers said the country has prevailed through uncertainty because “people believe that, ultimately, US institutions endure and succeed.”
But he said markets could soon begin to react to Trump’s “highly irresponsible behavior” that’s being “normalized.”
“We are playing with fire in terms of inflation expectations,” Summers said. “We haven’t seen substantial reactions in markets yet. But this could turn very quickly if the psychology changes.”
His words come as higher tariffs on imports have begun to take effect and as the president has made efforts to remove Federal Reserve Governor Lisa Cook, citing allegations of mortgage fraud.
Her ousting would create an opportunity for Trump to add another person of his choosing to the seven member board. He has already nominated Stephen Miran, chair of the Council of Economic Advisers, to serve as a governor following a vacancy.
Summers said the current moment requires GOP lawmakers to speak up.
He compared politicians’ criticisms of New York mayoral candidate Zohran Mamdani to their responses to president’s unprecedented moves.
“I have to say I have been struck that the prominent members of the financial community have had more to say being critical of @ZohranKMamdani‘s bad ideas about grocery stores in New York than they have the wholesale takeover of the @FederalReserve, which is a major threat to the financial system,” Summers wrote in a Wednesday post on X.
“I am very worried that highly irresponsible behaviors are being normalized by what President @realDonaldTrump is doing and by the failure of the establishment and of traditional voices.”
Earlier this year, Summers warned of a potential recession due to tariffs and other trade measures.
