The Fed can continue tightening or it can protect banks, but it can’t do both. From Ryan McMaken at mises.org:
The Federal Reserve’s Federal Open Market Committee (FOMC) on Wednesday raised the target policy interest rate (the federal funds rate) to 5.00 percent, an increase of 25 basis points. With this latest increase, the target has increased 4.75 percent since February 2022.
However, with an increase of only 25 basis points, the March meeting is the second month in a row during which the Fed has pulled back from its more substantial rate hikes of 2022. After four 75-basis-point increases in 2022, the committee approved a 50-point increase in December, followed by a 25-point increase in February, and another on Wednesday.
Although CPI inflation remains at or above six percent, the FOMC has slowed down in its monetary tightening over the past two months. At Wednesday’s press conference, Fed chairman Jerome Powell moved further into dovish territory.
We should expect more of this as the year wears on. Although CPI inflation remains well above the Fed’s two-percent target, recent bank failures will put the Fed under pressure to force interest rates back down so as to give banks better access to cheap liquidity. In other words, the Fed will have to choose between helping bankers on the one hand and reducing inflation—both monetary and CPI—for regular people on the other. Experience suggests the Fed will side with bankers and will thus move back in the direction of easy money even as price inflation continues to drive up the cost of living.