The Federal Reserve must choose between inflation and market chaos

The Federal Reserve is in a dilemma whether to focus on inflation or financial stability amidst financial instability caused by higher interest rates. The decision on interest rate hike on March 22nd is uncertain.

March 21, 2023 . 9:46 AM

1 min read

Higher interest rates lead to tighter financial conditions that can cause economic slowdown and lower inflation.
The recent financial instability poses a dilemma for the Fed, whether to focus on high inflation or financial stability.
The case for a pause in interest rate hike rests on two arguments: higher rates are at the root of the financial chaos and instability is a drag on the economy.
Proponents of pressing ahead with a rate rise see a quarter-point rise as a better option to quell inflation and demonstrate the Fed's ability to manage financial stability.
The decision of the Fed at the regular monetary-policy meeting on March 22nd is uncertain with probabilities of roughly 60% to a quarter-point increase and 40% to the Fed staying put.