The Federal Reserve will decide today whether to raise interest rates and by how much, as it tries to stem concerns about the banking system following a series of bank failures in the last few weeks.
If you would like more context on this matter, please consider Danny Leipziger, Professor of Practice of International Business and managing director of The Growth Dialogue at the George Washington University. Leipziger, a former vice president of the World Bank, headed the Bank’s Poverty Reduction and Economic Management Network of more than 700 economists and other professionals working on economic policy formulation in the area of growth and poverty, debt, trade, gender and economic empowerment, and public sector management and governance. Leipziger’s areas of expertise include development economics, international economic policy, and macro and economic growth.
“The Fed’s dilemma is that further rate hikes will further damage some bank balance sheets and will hurt those firms that are highly leveraged, while not doing so will allow inflation to linger. This problem of which direction for monetary policy mirrors the dilemma that the Bank of England faced last fall, when it intervened to help pension funds at the cost of briefly halting its anti-inflation fight,” Leioziger says.
“Additionally, making all depositors ‘whole’ in the case of SVB and others beyond the limits of FDIC insurance is a clear case of ‘moral hazard.’ The notion that profits are privatized and losses are socialized is a bad precent to set. Yet, a full-blown systemic banking crisis is even worse. So, these are tough decision times for the Federal Reserve."
If you would like to speak with Professor Leipziger, please contact GW Media Relations Specialist Cate Douglass at [email protected].
-GW-