Inflation and banking: What is the future?

CAPE GIRARDEAU, Mo. (KBSI) – The Federal Reserve is in a tricky situation when it comes to their approach to policy in the near future.

“It’s not just inflation as a policy goal right now, but also stability in the banking system,” said SEMO Economics professor Dr. David Yaskewich.

With the recent closures of Silicon Valley Bank and Signature Bank, combined with stubbornly high annual inflation at 6 percent, Yaskewich says the Federal Reserve is walking a tightrope… 

“It is a delicate dilemma that they’re currently facing, whether to have further interest rate hikes to address inflation, or whether they would want to pause or pivot to see what is happening right now in the banking system,” said Yaskewich.

There is a concern of a credit crunch, where banks would cut back on lending, which would result in a slowdown in economic activity and lower inflation rates… 

So, does the Federal Reserve keep hiking interest rates to control inflation? Yaskewich says the Federal Reserve is facing a bit of a credibility crisis… 

“I don’t think a pivot is likely because that would be indicating that they’re giving up on the inflation fight. I think a pause is more likely, but the other action they could take next week would be a quarter-point as opposed to a half-point interest rate hike,” Yaskewich said.