Most expect that the Federal Reserve (Fed) will keep the benchmark interest rate unchanged at Wednesday's FOMC meeting. Steve Hanke, a former economic adviser to President Reagan, agreed in an interview with BeInCrypto, mentioning long-term inflation as a major background.

Hanke stated that the increasing uncertainty in policy is distorting the priorities of the U.S. economy. He noted that these effects are no longer limited to monetary policy, but are gradually becoming evident in trade and currency markets, as well as in global confidence in U.S. leadership.

Fed freezes interest rates amid political pressure

Ahead of the next FOMC meeting, the market is overwhelmingly predicting that the Fed will not lower interest rates.

This decision is expected to come amid fierce opposition from the Trump administration. The Trump administration has repeatedly demanded the Fed lower interest rates.

Hanke mentioned inflation as a natural explanation and aligned with the Fed's stance. It is being seen as a basis for their arguments.

"The inflation issue in the U.S. has not yet been fully resolved. While inflation has decreased, it has remained stagnant for the past six months. I expect inflation to rise again in the future. The reason is that monetary policy is becoming increasingly accommodative, which is partly due to pressure from the White House." – Steve Hanke, former White House economic advisor

Earlier this month, the U.S. Department of Justice (DOJ) launched a criminal investigation into Fed Chair Jerome Powell. This news comes less than a year after the DOJ criminally investigated Fed Board member Lisa Cook for mortgage fraud.

Hanke indicated that the Fed is more likely to strengthen its resolve rather than compromise in response.

"I think the threat of criminal lawsuits against Chair Powell has led the Fed officials to decide firmly not to let Trump shake them."

Hanke stated that the nature of this resistance is spreading beyond monetary policy to the overall economic policy of the administration.

Global trade backlash... U.S. influence weakening

Former President Trump has repeatedly threatened trading partners by using U.S. tariffs as a negotiating card in trade and diplomatic negotiations since the start of his second term.

This approach had some effectiveness in the beginning, but major countries are strengthening their pushback. Last week, Trump threatened to impose tariffs on eight European countries if they did not agree to his proposal to purchase Greenland, which serves as a recent example.

The European Union (EU) immediately rejected the proposal. Just hours after Trump spoke at the Davos World Economic Forum, the threat of tariffs was withdrawn.

Other countries are also responding through new trade agreements.

Canada has recently signed a trade agreement with China and has also entered negotiations with India. Meanwhile, the European Union and India announced a separate free trade agreement.

"It’s ironic. While the United States, the birthplace of free-market capitalism, shifts towards protectionism, intervention, and anti-market policies, the world’s largest communist country, China, is moving towards free trade and market openness. India, which has been strongly protectionist, is also moving towards market liberalization recently." – Steve Hanke, former White House economic advisor

As countries continue to push back against U.S. tariff pressures, perceptions of U.S. economic hegemony are also being shaken. In this context, the value of the dollar is also under pressure. Hanke explained that concerns over dollar weakness are often exaggerated, but warned that if trade policies persist, trust may gradually weaken.

The recent surge in precious metal prices suggests that the market is already preparing for such an outcome.