If more banks continue to fail and the fed bails them out by printing more money, inflation will only get worse. Rate hikes will get prolonged which in-turn, will cause more losses for more banks which then requires more printing of money to bail them out causing more inflation and longer rate hikes.
This is the vicious cycle that’s ahead of us.
If the fed pauses rates… not only will they lose their grip on inflation, but longer rate hikes will be needed subsequently putting more banks at risk of collapsing and furthering the cycle mentioned above. Even under a pause, banks themselves won’t see much change. At most, they may be able to mitigate the loss of liquidity but even then we, operate off a lag so there’s no telling for sure if pausing rates would even do anything. If banks fail while rates are paused, the fed will have to QE and slash rates which will instantly vaporize purchasing power and the value of the dollar overnight. Markets of course would go up, but so will the price of bread. So you might as well just buy bread now, save it, then sell for a profit that pays off the house. In other words, hyper inflation. Same thing happens if rates were slashed right away (no pause).
I can’t think of any other way this can play out without causing more problems for inflation. Hopefully the greedy owners of said banks will be on the hook for these losses just like how capitalism should work. The means to socialize the losses has reached full capacity. If the fed can grow a pair and just let these greedy banks fail, we just might see a future for us in 10 years. Will there be some serious consequences for larger banks that fail? Ya, absolutely but there is no other alternative to this situation. We can’t keep printing money. If the country saw another 9/11 happen or COVID it’s game over. The fed isn’t going to simulate the economy because it can’t without prolonging rate hikes and increasing inflation.
Otherwise, expect the dollar to become worthless, world economy in shambles and the new reserve currency being the asset backed currency currently being built by nations in the East. The USA will become Russia, China and Iran’s bitch.
TL;DR: If the fed raises rates, banks will collapse. If the fed pauses rates, inflation will only get worse later on. If the fed slashes rates, hyper inflation happens overnight. There’s no winning for banks if this keeps up.