The market in general is expecting the Federal Reserve (Fed) to keep interest rates unchanged at the FOMC meeting on Wednesday. In an interview with BeInCrypto, former advisor to President Reagan, Mr. Steve Hanke, also agreed with this assessment and stated that persistent inflation is the main reason.
Mr. Hanke believes that increasing uncertainty in policy has distorted the economic priorities of the United States. According to him, this impact is not limited to monetary policy but also extends to trade issues, currency markets, and the world's confidence in America's leadership position.
The Fed maintains interest rates amid political pressure.
Ahead of the upcoming FOMC meeting, most opinions suggest that the Fed will not cut interest rates.
This decision was made in the context of the Trump administration continuously exerting pressure, emphasizing the desire for the Fed to soon cut interest rates.
Mr. Hanke supports the Fed's decision, arguing that inflation is the most understandable reason for this policy.
The risk of inflation in the U.S. remains, and it cannot be fully controlled. Although inflation has decreased, it has not reduced further in the last six months; in fact, I predict it will trend upwards,” Mr. Hanke told BeInCrypto, adding: “The reason is that monetary policy is gradually becoming more lenient, partly due to pressure from the White House.
Earlier this month, the U.S. Department of Justice (DOJ) launched a criminal investigation targeting Fed Chairman Jerome Powell. Less than a year ago, the DOJ also conducted an investigation into Fed Commissioner Lisa Cook regarding mortgage fraud.
Rather than making the Fed yield, Mr. Hanke argues that these pressures only strengthen the Fed's determination further.
With Mr. Powell being threatened with criminal prosecution, I think the Fed's internal stance will become more resolute and will not allow Mr. Trump to overpower them,” he said.
Mr. Hanke stated that this trend of ‘resistance’ is not limited to monetary policy but is also spreading to many other economic policies of the U.S. administration.
Global trade opposition weakens the influence of the United States.
Since his second presidential term, Mr. Trump has continuously threatened tariffs on trade partners, using it as leverage to gain advantages in trade and foreign negotiations.
Initially, this strategy was effective, but more and more countries began to respond. For instance, last week, Mr. Trump threatened to impose tariffs on eight European countries if they did not agree to the proposal for the U.S. to buy Greenland.
The European Union immediately rejected this proposal. Just a few hours after Mr. Trump's speech at the World Economic Forum in Davos, the U.S. withdrew its threat of tariffs.
Other countries are also responding by signing additional new trade agreements.
Canada has just completed a trade agreement with China and is also negotiating a deal with India. Concurrently, the European Union and India have announced a separate free trade agreement.
It is ironic that the U.S. – a symbol of free-market capitalism – is shifting towards protectionism, intervention, and going against free markets. Meanwhile, China, the largest communist country in the world, is pivoting towards trade and free markets,” Mr. Hanke commented. And India, which is known for strong protectionism and intervention, is now also moving towards market liberalization.
The increasing reactions from many countries to tariff pressures have raised questions about the U.S.'s economic leadership role. In this context, the USD is also under pressure. Although Mr. Hanke believes that concerns about a weakening dollar are somewhat exaggerated, he warns that ongoing trade policies will gradually undermine trust in the USD over time.
Recent price increases in precious metals suggest that the market seems to have begun preparing for this scenario.