WASHINGTON The Federal Reserve on Wednesday continued to ramp up its efforts to slow the economy, despite recent bank failures caused partly by rising interest rates.

The central bank announced it is raising interest rates by another quarter of a percentage point, the ninth rate hike since the Fed kicked off its battle against inflation in March 2022.

Even as he said the banking system remains resilient, Federal Reserve chair Jerome Powell also noted Wednesday that the recent instability in it would actually help the Fed in its mission to fight inflation.

The events of the last two weeks are likely to result in some tightening of credit conditions for households and businesses and thereby weigh on demand on the labor market and on inflation, Powell said.

You can think of it as being the equivalent of a rate hike, or perhaps more than that. Of course, its not possible to make that assessment today with any precision whatsoever.

While Powell said bankers becoming more choosy in their lending may help the central banks efforts to fight inflation, one economist said the decision to hike rates may hurt its efforts to stabilize the banking system.

The Feds decision to raise rates is incongruous with efforts to reestablish the stability of the financial system, Mark Zandi, chief economist with financial analysis firm Moodys Analytics told HuffPost in an email.

It shows a willingness to roll the dice with the financial system and economy to get inflation down more quickly, he said.

Higher interest rates make money more expensive to borrow, causing people to spend less. The Fed is hoping the economy will cool off just enough that businesses set lower prices for goods and services.

But another potential consequence of higher rates is financial instability not to mention potentially massive layoffs.

Policymakers at the Fed, including Powell and other members of the central banks board of governors, indicated they expect the national unemployment rate to rise to 4.5% this year, a tenth of a percentage point less than they expected when they last released an estimate in December.

Thats an estimate of what will happen as demand slows, and as conditions soften in the labor market, and its just its a highly uncertain estimate, Powell said. There are real costs to bring it down to 2%, but the costs of failing are much higher.

Overall annual inflation has fallen from its peak of 9.1% last summer to 6% in February, but the recent pace of decline has been too slow for the Feds liking.

The Feds strategy has been controversial from the start, with progressives calling on the central bank to lay off the rate hikes so as to avoid causing a recession. After all, the higher prices resulted partly from supply chain problems such as factories shutting down in China because of COVID that are entirely outside the Feds control.

But the recent failure of Silicon Valley Bank in California illustrated another way that interest rates can cause economic turmoil by making investors complacent about the risk of interest rates rising after a long period of cheap money.