The collapse of Silicon Valley Bank and two other lenders have sparked fears about broader financial instability in the U.S. and abroad. That could upend the Fed’s efforts to curb inflation by raising interest rates at the fastest pace in four decades.
Investors will have to parse what they know about Jerome Powell’s approach to managing risk and weigh that alongside fresh inflation data coming out this week. | Luis Magana/AP PhotoFederal Reserve Chair Jerome Powell suddenly has a major new concern to weigh in his year-long battle against inflation: a string of bank failures.
The stakes are enormous: If the central bank holds back on rate hikes, that could lead inflation to stay higher for longer, further eating into Americans’ paychecks. If it forges ahead, it could risk triggering more financial turmoil. Fed policymakers next meet on March 21-22, where they have been widely expected to raise rates for the ninth straight time.Ayanna Pressley
SVB’s sudden fall adds a new wrinkle to the already complicated inflation fight that may determine whether the U.S. falls into a recession. Higher costs have been fed by supply chain snarls, record amounts of government spending, Russia’s war in Ukraine and a reopening of the economy that sparked a burst of activity — all of which have emboldened companies to raise prices.
Former Fed Governor Daniel Tarullo, who was in charge of regulations at the central bank under President Barack Obama, said if there are signs that loan officers are pulling back, that would naturally clamp down on growth even without a move from the Fed.
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