Krugman Warns Bessent: Market Forces Trump Treasury Intervention

Economist Paul Krugman has warned Treasury Secretary Scott Bessent against overestimating his ability to control financial markets. In a recent Substack post, Krugman took issue with Bessent's declaration that 'I am the house now', made after he said traders could bet against him if they disagreed with U.S. efforts to support the Japanese yen.

Krugman argued that global forces are playing a larger role in the recent rise in long-term interest rates, making it impossible for the Treasury to simply dictate market outcomes through intervention. He pointed out that Bessent's attempt to push rates lower with Treasury intervention is 'foolish', and that policymakers should be careful about making sweeping claims of control over markets.

Krugman also noted that long-term interest rates have been rising across major economies, including the U.S., where they have recently climbed towards 4.85%. He suggested that one potential explanation for this trend is the surge in investment tied to artificial intelligence, which could ultimately exceed the technology investment boom of the late 1990s.