Silicon Valley Bank's collapse is looming over the Fed as it makes the next move in its war on inflation this week

• The Federal Reserve will announce its next interest rate decision on Wednesday.
• It comes in the aftermath of the Silicon Valley Bank collapse.

Fed Chair Jerome Powell's life is probably about to get harder this week.

On Wednesday, the Federal Open Market Committee (FOMC) will announce whether or not it will raise interest rates once again as part of its ongoing fight against skyrocketing inflation. It comes after weeks of chaos in the banking industry — federal regulators shut down Silicon Valley Bank (SVB) last Friday and announced a bailout for the bank's depositors 48 hours later.

The fallout of SVB's collapse had lawmakers on both sides of the aisle questioning what happened. While GOP lawmakers criticized regulators for a bailout that would benefit the wealthy, Democrats targeted a Trump-era rollback of a 2010 law meant to protect consumers from abusive financial practices following the 2008 financial crisis.

In 2018, Trump signed into law a partial rollback of the Dodd Frank Act, which eliminated stress tests for banks like SVB. Specifically, the 2018 legislation raised the threshold for regulation standards from $50 billion to $250 billion, meaning small and mid-sized banks were not subject to oversight that could evaluate how they might respond to factors like increased interest rates.

The Federal Reserve has rapidly hiked interest rates at its last eight meetings over the last year to help the US reach its pre-pandemic inflation level of 2%. In February, it raised interest rates 25 basis points — a slowdown from the 50 basis point hike in December — but as Powell said following the announcement, continued hikes will be warranted as the country continues to battle high prices.

That has left many Democratic lawmakers concerned — especially now, following SVB's collapse. In a letter to Powell last week, Massachusetts Sen. Elizabeth Warren lambasted Powell's prior actions that she said contributed to the bank's shutdown.

"The banks' executives – who took too many risks, and failed to protect their customers – are the primary agents responsible for their failure. But the greed and incompetence of these officials was allowed to happen under your watch," she wrote.

"It was allowed to happen because of Congress and President Trump's weakening of the Dodd-Frank Wall Street Reform and Consumer Protection Act ('Dodd-Frank Act') that you supported," she continued. "It was allowed to happen because of regulatory rollbacks that you initiated. And it was allowed to happen because of supervisory failures by officials that worked for you. This is an astonishing list of failures and you owe the public an explanation for your actions."

Warren continued her criticism of Powell on NBC's Meet the Press on Sunday, saying that he should not continue increasing interest rates this year.

"These extreme rate increases are something that he should not be doing," Warren said. "And the reason for that is twofold. The first is to remind Chair Powell: he has a dual mandate. Yes, he is responsible for dealing with inflation, but he is also responsible for employment. And what Chair Powell is trying to do, and he has said fairly explicitly, is that they are trying to, in effect, slow down the economy so that, this is by the Fed's own estimate, 2 million people will lose their jobs. And I believe that is not what the chair of the Federal Reserve should be doing."

Her second point, she said, was that raising interest rates does not solve issues like price gouging or the Ukraine invasion. "He's failing in both jobs, both as the oversight manager of these big banks, which is his job, and also what he's doing with inflation."

During a Senate hearing earlier this month, Powell responded to Warren's questioning on interest rates costing jobs. He said that he would "explain to people more broadly that inflation is extremely high and it's hurting the working people of this country badly. All of them, not just 2 million of them, but all of them are suffering under high inflation and we are taking the only measures we have to bring inflation down."

"Will working people be better off if we just walk away from our jobs and inflation remains 5%-6%?" he said.

As Insider previously reported, investors are expecting a 25 basis point increase on Wednesday. It comes after the Consumer Price Index last week showed inflation cooling down in February, rising 6% year-over-year, following the Bureau of Labor Statistics' report that found the US added 311,000 jobs in February.

Although inflation is cooling, the labor market remains hot, suggesting there's more work for the Fed to do — and more interest rate hikes to come.