Project SyndicateProject Syndicate

The Fed must not flinch

By Michael R. Strain

21 Mar 2023 · 3 min read

Editor's Note

An economic policy expert makes a case for the U.S. Federal Reserve to continue hiking interest rates to send a signal of strong financial stability and a determined resolve to fight inflation.

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.

Last month, the consumer price index registered 6% inflation relative to the same month in 2022. Stripping out volatile food and energy prices found 5.5% “core” inflation. Over the past three months, core CPI has increased at a 5.2% annual rate – the fastest pace since October 2022.

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