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(KNSI) – St. John’s University and College of Saint Benedict Economics Professor Dr. Louis Johnston tells KNSI News that the Federal Reserve made the right decision to raise interest rates by 0.25%.

The statement from the Open Market Committee that was released Wednesday afternoon says the central bank views the financial system as strong and resilient. That was reiterated by Fed Chairman Jerome Powell during a press conference. It comes just days after First Republic Bank failed and was absorbed by J.P. Morgan Chase. It was the second-largest bank collapse in American history.

The roller coaster doesn’t appear to be over. Regional banks as a sector were down nearly 10 percent in trading Thursday morning. PacWest Bancorp, which has over 28 billion dollars in deposits, saw its stock fall by nearly 50 percent, raising concerns that there will be more failures possible this weekend. Johnston says the Fed is more worried about inflation, which is slowly coming down, than instability.

Johnston says Powell has repeatedly stated that he wants a variety of banks operating within the system, and not just mega institutions. Recent actions have done just the opposite, though. Regulators had to make an exception for Chase, the country’s largest bank, to be able to purchase the assets of First Republic early Monday morning.

Johnston believes the stress on small lenders will have an effect on mom-and-pop businesses. Community and regional banks are being more cautious about taking on risk, which means getting a loan will become more difficult.

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