WASHINGTON, March 14 (Reuters) - Stubbornly high inflation, a robust job market, and an outbreak of financial stress have presented the Federal Reserve with a stark choice in the coming week: push ahead with interest rate hikes that could upend fragile markets or announce a pause that could weaken its unfinished fight against rising prices.
Despite designating a recent U.S. bank collapse as a "systemic risk," the U.S. central bank is currently expected to raise interest rates by another quarter of a percentage point at its March 21-22 policy meeting, with inflation still strong, the Fed's inflation-fighting credentials on the line, and financial markets calmed - for now - by a new liquidity program for banks.
An index of U.S. bank stocks rose on Tuesday as did the broader equity market. Yields on Treasury bonds, meanwhile, increased as investors discounted the likelihood that the Fed would shy away from further rate increases.
A quarter-percentage-point increase "is a justifiable way to trade off the relevant risks," said Narayana Kocherlakota, the former president of the Minneapolis Fed and now an economics professor at the University of Rochester in New York state.