Indian economist Sanjeev Sanyal believes that another U.S. Federal Reserve rate hike, after the Silicon Valley Bank and Signature Bank crisis, could be a bad idea for the financial system.

What Happened? Sanyal took to Twitter to opine that he doesn’t think it would be a “good idea” for the Federal Reserve to continue with its current policy of rate hikes.

The economist was reacting to a CNBC report that states that global markets believe the US Federal Reserve could keep up its inflation-fighting efforts, despite high-profile bank failures.

“Their financial system clearly cannot take it,” says Sanyal, who’s also a member of the Economic Advisory Council to the Prime Minister of India.

“If they must use a lever to cool the economy going ahead, they should prefer the fiscal from here while allowing time for past rate hikes to filer through,” says the economist.

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Why it Matters? Sanyal who doesn’t usually delve into chatter on economics on social media adds that the whole episode serves as a reminder that excess monetary easing causes bubbles that will eventually burst.

Meanwhile, according to Goldman Sachs, the Federal Reserve will likely not deliver a rate hike at its meeting next week, citing "recent stress" in the financial sector.

The firm had previously expected the Federal Reserve to hike rates by 25 basis points.

It is also worth noting that last month, the Federal Open Market Committee (FOMC) boosted the federal funds rate by a quarter percentage point to a target range of 4.5% to 4.75%, the highest since October 2007.

Photo: World Economic Forum on Flickr

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