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The Fed Must Not Flinch

The failures of Silicon Valley Bank and Signature Bank are significant market events. But, given an overheated labor market and 1970s-like inflation, if the Fed cannot see the whites of the eyes of a systemic banking crisis, then it must move aggressively on the inflation front.

WASHINGTON, DC – Financial-market turmoil has clouded the outlook for US monetary policy, with many economists, investors, and financial institutions expecting that the Federal Reserve will not increase its policy interest rate at its meeting this week. But while the failures of Silicon Valley Bank (SVB) and Signature Bank are significant market events, they should not knock the Fed off course. Policymakers should hike the benchmark federal funds rate by at least 25 basis points this week. With signs Monday that bank deposits had stabilized, a 50 bps increase would be even better.

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