The economy continues to display stubborn strength, according to the Commerce Department’s latest report, which tallied economic growth in the January–March quarter. Despite the Fed’s best efforts to throttle the economy, growth stayed positive.

GDP grew at an inflation-adjusted 1.1 percent—less than in 2022, but still not bad, especially taking into account the fact that consumption rose by 3.2 percent.

Unfortunately, this basically solid report will give the Fed more ammunition to keep raising interest rates when the Federal Open Market Committee meets again next Tuesday and Wednesday. And the fact that the quarterly inflation rate, at 4.2 percent, was still way above the Fed’s (wildly unrealistic) target of 2 percent only helps the hawks.

One imponderable not included in the latest Commerce Department data is the condition of the banking system. The immediate damage from the collapse of Silicon Valley Bank looks as if it has been contained for now. But one other regional bank active on both coasts, First Republic, has suffered a massive outflow of deposits and looks as if it could collapse anytime. The bank’s stock is now trading at about $6 a share, down from around $150 a year ago.

A more systemic problem is the fact that businesses are borrowing less and banks are lending less—due to a combination of high interest costs and worries about a recession that could then become a self-fulfilling prophecy. In the last two weeks in March, commercial bank lending declined by about $105 billion, the fastest rate of decline since 1973.

When the histories are written about this economy and Fed policy, they should observe that the Fed’s priorities of loose regulation and tight money were exactly backwards. It remains to be seen whether the result will be a crash landing and a mild recession or a deeper slump. Either will be the needless result of bad policy.