Fed decision this week will signal Powell’s priority: financial stability or inflation control

THIS week, the United States Federal Reserve will find itself trapped between a rock and a hard place: forced to choose between a financial crisis and an inflationary spiral.

The central bank is widely expected to raise interest rates by a quarter of a percentage point at the conclusion of its meeting on Wednesday (May 3), bringing its benchmark rate to a range of 5 per cent to 5.25 per cent. The Fed will have to acknowledge the ongoing distress in the banking system as it provides guidance for future moves.

For now, a financial crisis seems to be the central bank’s preferred poison. The Fed is hoping an ongoing wave of major bank failures can still be contained. Under chairman Jerome Powell, the Fed has taken on the aspect of firemen: trying to isolate massive fires in the California brush before they reach major cities.