The Fed is focused on inflation and the banking jitters won't stall its interest-rate increases, Jim Bianco says

• Trouble with regional banks won't impact the Fed's decision to lift interest rates, Jim Bianco said.
• The Wall Street analyst thinks the Fed will raise rates this week and probably again next month.

The Federal Reserve is so focused on fighting inflation that the latest banking-sector tremors won't unsettle its policy stance that favors higher interest rates, Wall Street analyst Jim Bianco said.

The US banking turmoil that began with the collapse of Silicon Valley Bank in March remains unresolved, with First Republic's failure this week reigniting fears of broader financial instability. Still, the founder of market research firm Bianco Research thinks turbulence faced by mid-sized US banks won't alter Fed chair Jerome Powell's interest-rate decision on Wednesday.

The US central bank is widely expected to raise its benchmark rate by another 25 basis points this week. It has boosted borrowing costs toward 5%, from almost zero as of March 2022.

"The Fed is focused on inflation, and they're gonna raise rates, and they're gonna leave the door open to raising rates again in June. Now, I happen to think that's a mistake at this point. But it doesn't matter what I think, that's the way that they've been viewing it," Bianco told CNBC on Monday.

"[Fed chair Jerome Powell] is not going to have anything with the banks change his opinion. It's all about inflation. He sees inflation as a problem. He's gonna raise rates this week and leave the door open for more rate hikes," Bianco added.

The Wall Street analyst also pointed to a January survey from Bankrate showing that more than half of Americans can't afford to cover an unexpected bill of $1000 with savings, and that nearly 3 in every 4 adults have less savings this year compared to the last because of economic factors like inflation, interest rates and changes in their employment.

"I think the way that [Powell] looks at it is that 57% of the public - and this is a recent survey by Bankrate - lives paycheck to paycheck, they couldn't come up with $1,000 in savings. So he looks at a 5% or 6% inflation rate and says: 'these people lose, I have to do something about inflation.'"

"And that's the dilemma. If he focuses a lot on inflation, then financial markets could struggle. If he appeases financial markets, he lets inflation go. And he's viewing it from that 57% versus stockholders," Bianco continued.

He added: "[Powell] is not going to say to the 57% that live paycheck to paycheck: sorry, you're just going to have to deal with having prices rise faster than your paycheck because I can't let the stock market go to 3500 or whatever bearish scenario you want.' That's why he's focused on inflation."