The Federal Reserve is facing stinging criticism for missing what observers say were clear signs that Silicon Valley Bank was at high risk of collapsing into the second-largest bank failure in U.S. history.
A pedestrian carries an umbrella while walking past a Silicon Valley Bank Private branch in San Francisco, Tuesday, March 14, 2023.
Now the consequences of the fall of Silicon Valley Bank, along with New York-based Signature Bank, which failed over the weekend, are complicating the Fed’s upcoming decisions about how high to raise its benchmark interest rate in the fight against chronically high inflation. The latest government report on inflation, released Tuesday, shows that price increases remain far higher than the Fed prefers, putting Chair Jerome Powell in a tougher spot. Core prices, which exclude volatile food and energy costs and are seen as a better gauge of longer-run inflation, jumped 0.5% from January to February — the most since September. That is far higher than is consistent with the Fed’s 2% annual target.
Most banks would have sought to make other investments to offset that risk. The Fed could have also forced the bank to raise additional capital.
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