The Fed Can Keep Raising Rates in the Face of a Banking Crisis

Can the Fed raise rates and ward off a financial crisis at the same time? It’s likely to try. The measures policymakers have taken so far have already lessened the sense of panic. But this latest episode increases the chances of recession and creates downside risk for equities.

The Fed is likely going to raise rates by a quarter percentage point this week, which would seem at odds with the central bank’s efforts to contain a banking crisis created in part by its aggressive monetary policy tightening. But, hang on, things aren’t that bad yet. Markets are a bit calmer this week. Stocks were even up on Monday and extending gains on Tuesday at the time of writing this column.