The collapse of Silicon Valley Bank, according to Wall Street observers, will force the Federal Reserve to pause its policy of raising short-term interest rates to slow rising prices across the economy. Following that logic, the Fed will decide that it is better to accept the risk of rising prices than to cause a banking crisis by continuing to raise rates.
That makes sense—except that it probably means that prices will start rising again as the Fed eases rates and provides liquidity to troubled banks. It also means that we may return to the “stop and go” policies of the 1970s that perpetuated inflation through the entire decade.
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James Piereson is a senior fellow at the Manhattan Institute.
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