Fed Raise Interest Rates Despite Bank Collapse

Image copyright: Getty Images [via CNBC]

The Facts

  • The Federal Reserve raised interest rates for the ninth time in a row on Wednesday, aiming to continue combating high inflation despite turmoil in the banking industry following the collapse of two regional banks.

  • The federal reserve raised overnight lending rates 0.25% to a range of 4.75% to 5%, making interest rates the highest they have been since September 2007.

The Spin

Pro-establishment narrative

The Federal Reserve has taken decisive actions to protect the US economy and restore public confidence in the banking system. Inflation poses a bigger threat to the economy than any repercussions from uncertainty over the banking system — raising interest rates is the right decision.

Establishment-critical narrative

The Federal Reserve needs to stop its rate hikes, at least temporarily, in order to assess the fallout from the collapse of Silicon Valley Bank and Signature Bank earlier this month. Continuing with hikes risks spooking the market, as there is no way the Fed has had time to fully analyze the current landscape of the banking sector or factor recent events into its decision making.

Narrative C

While many people are critical of the Federal Reserve's decision to increase interest rates once again, there really isn't a right solution for the Fed under current circumstances. Inflation is still too high and the labor market is too tight but, on the other hand, they need to make sure to avoid exacerbating issues within the banking system. There is no way the Fed can keep everyone happy.

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