Two weeks ago, a quarter-point increase in interest rates — maybe even a half-point hike — by the Federal Reserve Board at its meeting this week was seen as all but certain. Now, not so much.

The second-largest bank collapse in American history and the chaos that ensued in the banking sector overall following the spectacle has left the Fed chairman, Jerome Powell, and his fellow governors in a bit of a pickle. Should they continue with their planned increases to try to tamp down stubbornly high inflation and risk further pressure on the banks, or hold off until the dust settles?

Before the collapse of Silicon Valley Bank on March 10, investors everywhere were banking on further increases. The only question was whether Mr. Powell would announce an increase of 25 basis points or a slightly higher hike of 50 basis points at the conclusion of the Federal Reserve Board’s meeting on Wednesday. Now, analysts believe the higher rate increase is all but off the table, and some analysts believe it should hold off on any rate increase at all.

An economist and fellow at the American Enterprise Institute, Desmond Lachman, is among those analysts. The Fed “should pause at its current meeting in order to avoid adding to financial market strains and creating the conditions for a very hard economic landing,” Mr. Lachman told the Sun. “It is more than likely that the banks will now cut back sharply on providing credit. Such a credit crunch together with the Fed’s most hawkish interest rate rising cycle in the past 40 years are likely to cool the economy without the need for further interest rate increases.”

Other Fed watchers, including former governors of the central bank, believe such a pause would cause even more problems. Throughout its current cycle of interest rate increases, Mr. Powell has made a point of being open about the bank’s plans to avoid any shocks to the system. To break from that tradition now, these observers say, would be an unpleasant surprise that could backfire.

“I would advise them to go ahead with the 25,” a vice chairman of the Fed between 2018 and 2022, Richard Clarida, told the Wall Street Journal. “If they pause, you can get into this, ‘What do they know that we don’t know.’”

Others in the Biden administration hit the streets Tuesday to make the case that the banking system is more than capable of handling the rate increases that led to problems in the sector in the first place. In remarks at a meeting Tuesday of the American Bankers Association, Secretary Yellen sought to reassure the audience that the country’s banking system is stable and that regulators are prepared to step in again should that change in the near term.

The Biden administration is prepared to intervene again to “protect the broader banking system … if smaller institutions suffer deposit runs that pose the risk of contagion,” she said.

Ms. Yellen, who sounded a similar refrain when she addressed the Senate Finance Committee last week, is scheduled to appear before two additional congressional panels later this week.

Mr. Lachman believes the Fed’s current predicament — high inflation and an unstable banking sector — is one of its own creation. In 2021, during the pandemic, he said, Mr. Powell and his colleagues chose to keep interest rates near zero despite clear signs that the economy was recovering quickly and the country was awash in federal Covid stimulus cash.

“The net result of this ultra-easy monetary policy is that the Fed helped produce multi-decade inflation and asset price and credit market bubbles,” Mr. Lachman said. “Now that the Fed has had to slam on the monetary policy brakes to regain control of inflation, serious cracks are appearing in the banking system.”