The Fed is putting the economy in jeopardy by not prioritizing the stability of the banking system, Moody's chief economist says

• The Fed is putting the economy at risk by not prioritizing bank stability, Moody's Mark Zandi said.
• He said the Fed's 25-basis-point rate hike added to tighter credit conditions at banks.

The Fed isn't prioritizing the stability of the US banking system – and that's putting the economy in jeopardy, according to Moody's chief economist Mark Zandi.

In an interview with CNBC on Thursday, estimated that tighter credit conditions since the collapse of Silicon Valley Bank are equivalent to two or three 25-basis-point interest rate hikes. On top of that, central bankers raised benchmark rates another 25-basis-points at their policy meeting Wednesday.

"That puts the federal effective funds rate target closer to 6%. I think that's a pretty significant increase in interest rates, and I do think that puts the economy in jeopardy," Zandi warned.

The fed funds rate is now officially targeted between 4.75-5%, after central bankers had already hiked rates 1,700% over the last year in order to control inflation.

But that created massive losses in banks' bond portfolios, which triggered SVB's failure and put other regional banks under pressure from depositors seeking safety in bigger lenders.

Market commentators like Paul Krugman and Bill Ackman had urged the Fed to pause or pull back its rate hiking regime altogether as worries about the banking system have spiraled.

Zandi also believed Fed officials should have paused rates at their last policy meeting, in order to examine the full effects of the banking crisis on the economy.

"The first priority has got to be the stability of the banking system, and of course they did not do that, and I do think they're running a risk here," he said.