The Fed Backtracks on Future Rate Hikes as Bank Failures Loom Large


The Federal Reserve’s Federal Open Market Committee (FOMC) on Wednesday raised the target policy interest rate (the federal funds rate) to 5.00 percent, an increase of 25 basis points. With this latest increase, the target has increased 4.75 percent since February 2022.

However, with an increase of only 25 basis points, the March meeting is the second month in a row during which the Fed has pulled back from its more substantial rate hikes of 2022. After four 75-basis-point increases in 2022, the committee approved a 50-point increase in December, followed by a 25-point increase in February, and another on Wednesday.

“When He opened the third seal, I heard the third living creature say, “Come and see.” So I looked, and behold, a black horse, and he who sat on it had a pair of scales[a] in his hand.” Revelation 6:5


Although CPI inflation remains at or above six percent, the FOMC has slowed down in its monetary tightening over the past two months. At Wednesday’s press conference, Fed chairman Jerome Powell moved further into dovish territory.

We should expect more of this as the year wears on. Although CPI inflation remains well above the Fed’s two-percent target, recent bank failures will put the Fed under pressure to force interest rates back down so as to give banks better access to cheap liquidity. In other words, the Fed will have to choose between helping bankers on the one hand and reducing inflation for regular people on the other. Experience suggests the Fed will side with bankers and will thus move back in the direction of easy money even as inflation continues to drive up the cost of living.

The Fed Can’t Keep Tightening and Also Protect Banks 

The FOMC’s retreat to 25 basis points was expected in light of this month’s bank failures and nascent financial crisis which became obvious with the failure of Silicon Valley Bank on March 10. This was the largest bank failure since the 2008 financial crisis, and is the second-largest bank to fail in the United States. On March 12, Signature Bank failed as well.

Read the entire Mises Institute article HERE