The Federal Reserve Faces a Difficult Decision as It Weighs Interest Rate Hike Amid Regulatory Turmoil

The Federal Reserve is facing a difficult decision as it meets to decide whether to keep raising interest rates or declare a pause. Most economists expect the Fed to announce a quarter-point hike in its benchmark rate, its ninth hike since March of last year.

The Fed will also have to decide whether to extend its year-long streak of rate hikes despite the jitters roiling the financial industry. This has raised questions about the Federal Reserve’s ability to do its job as the primary regulator of the banking industry, due to the practice of regional banks in the Federal Reserve system to invite executives of the institutions they regulate to sit on their boards.

The policymakers will also try to peer into the future and forecast the likely path of growth, employment, inflation and their own interest rates. These forecasts will be released Wednesday, and the Fed will have to make its decision in the face of a hazier economic picture clouded by turmoil in the banking industry and still-high inflation.

The recent debacles of Silvergate and Silicon Valley Bank have put financial regulators on the hot seat, notably the Federal Reserve Bank of San Francisco, the overseer of both banks. The Fed will have to make its decision in the face of this scrutiny, and the outcome could have far-reaching implications for the banking industry and the economy as a whole.