The Federal Reserve must confront a deeply consequential choice: Raise interest rates to fight inflation or take a timeout amid “the most intense banking crisis since 2008,” The Wall Street Journal reported March 20.
If the Fed takes the first path, interest rates would be raised by a quarter-percentage point, the report said. That decision could depend on how markets handle the blending of UBS and Credit Suisse.
“I would advise them to go ahead with the 25,” former Fed Vice Chair Richard Clarida told the Journal. “If they pause, you can get into this, ‘What do they know that we don’t know?'”
The other path, a timeout on rate raises, could lead to monetary policies overly focused on skirting market stress, the Journal reported.
“I wouldn’t add fuel to the fire by raising interest rates at the same time there already is a tightening of financial conditions provided by a financial shock,” former Boston Fed President Eric Rosengren said in the report. “One 25-basis-point increase now will have a fairly modest effect on inflation, but it could have an amplified effect on financial conditions.”
The Fed’s two-day meeting on the decision is expected to wrap up March 22.