Former Reagan Advisor Discusses Fed Rates and the US Economic Crisis

Markets widely expect the Federal Reserve to hold interest rates steady at Wednesday’s FOMC meeting. In an interview with BeInCrypto, former Reagan advisor Steve Hanke agreed, citing persistent inflation.

Hanke argued that growing policy uncertainty has distorted US economic priorities. He said the effects are no longer confined to monetary policy but are increasingly visible in trade, currency markets, and global confidence in US leadership.

Fed to Hold Rates Amid Political Pressure

Ahead of the next FOMC meeting, there is widespread expectation that the Federal Reserve will not cut interest rates. 

The decision will come amid significant pushback from the Trump administration, which has reiterated its desire for the Fed to cut interest rates. 

Hanke sided with the Fed, looking at inflation as the natural explanation.

“The inflation genie in the United States has not been shoved back in the bottle. Inflation has come down, but it’s been stuck for six months or so, and I anticipate that it’s going up,” Hanke told BeInCrypto, adding, “The reason for that is the monetary policy is becoming looser and looser under, in part, pressure from the White House.”

Earlier this month, the Department of Justice (DOJ) initiated a criminal probe into Fed Chair Jerome Powell. The news came less than a year after the DOJ opened another criminal inquiry into Fed governor Lisa Cook for mortgage fraud.

Rather than prompting the Fed to comply, Hanke said the pressure is likely to reinforce the central bank’s resolve.

“With this threat of a criminal suit against Chairman Powell, I think the Fed establishment decided that they were going to dig in and not let Trump push them around,” he said.

Hanke said this pattern of resistance extends beyond monetary policy, reaching other parts of the administration’s economic agenda.

Global Trade Pushback Weakens US Influence

Since the start of his second term, Trump has repeatedly threatened trading partners with US tariffs, using them as leverage to extract concessions in trade and foreign policy negotiations.

While these tactics initially proved effective, countries have increasingly pushed back. A recent example occurred last week, when Trump threatened to impose tariffs on eight European countries unless they agreed to the US purchase of Greenland.

The European Union rejected the proposal outright, and within hours of Trump’s speech at the World Economic Forum in Davos, the tariff threat was withdrawn.

Other countries are pushing back through new trade agreements.

Canada recently agreed to a trade deal with China and is now in negotiations to strike one with India as well. Meanwhile, the European Union and India announced a separate free trade agreement. 

“It’s ironic. The US, which is the home of free market capitalism, taking a pivot toward protectionism, intervensionism and anti-free market [while] China, the biggest communist country in the world, [is] pivoting towards free trade and free markets,” Hanke said, adding, “[Meanwhile], India who has always been hampered by huge protectionism and interventionism– theyre pivoting toward liberalizing.”

As countries increasingly resist tariff pressure, perceptions of US economic dominance waver. In that context, the dollar comes under pressure. While Hanke said concerns about dollar weakness are often overstated, he warned that continued trade policies could gradually erode confidence.

Recent rallies in precious metals have suggested markets are already positioning for that outcome.