The Fed Will Continue to Hike Despite Banking Crisis, Predicts Former Richmond Fed Chief

Former Richmond Federal Reserve President Jeffrey Lacker believes the Fed should – and will – remain firm in hiking interest rates at its upcoming March meeting, and subsequent meetings thereafter.

Despite a series of bank failures this month that was partly induced by rising rates, the ex-chair believes more will be necessary to combat inflation.

The Inflation Fight Continues

In an interview with Andrew Sorkin from Squawk Box, Lacker said that the Fed should “go ahead with a 25 basis point increase” when the Federal Open Markets Committee (FOMC) concludes its meeting on Wednesday, to display conviction to its anti-inflation cause. 

Such a hike would be in line with market expectations, though the CME Fedwatch tool shows markets are pricing in an 18.8% chance of no hike taking place.  

“To pause now would send a signal of concern and worry and convey that they know things are worse than people on the outside think,” said Lacker. “I take Jay Powell seriously.”

After Silicon Valley Bank’s collapse earlier this month, the Federal Reserve has taken multiple measures to shore up liquidity for the banking system and prevent further bank runs. 

However, critics of its actions suggest their actions reverse much of the progress they’ve made in reducing the money supply over the past year. BitMEX co-founder Arthur Hayes said last week that he views its new Bank Term Funding Program as a “repackaged” form of quantitative easing and an informal “pivot.”

Billionaires Elon Musk and Bill Ackman recently called on the Fed to formally pivot by cutting interest rates to stabilize the banking system. However, Lacker believes the “banking crisis,” is not as severe as others would have it.

“My guess is people are moving deposits from one bank to another…The banking system as a whole is going to retain those deposits,” he said. “As a result, I don’t see a dramatic change in credit conditions.”

Lacker added that the Fed has “separate tools” to address credit problems that don’t involve changes to monetary policy, the latter of which might only exacerbate inflation as it did in the late 1990s. 

Hyperinflation Incoming?

Bitcoiners like Strike CEO Jack Mallers remain confident that the Federal Reserve will be forced to forfeit its battle to bring inflation back down to 2%. Speaking to CNBC on Monday, Mallers claimed that the US dollar was entering a new era of perpetual 5 to 10% inflation. 

Similarly, former Coinbase CTO Balaji Srinivasan placed a $2 million bet last week that Bitcoin would reach $1 million in the next 90 days, due to hyperinflation.