A rate hike is expected this week, and the argument is that skipping it would be worse for markets than doing it — bad news for stocks either way, but worse if the Fed blinks.

• The 10-year Treasury yield broke 5% for the first time in three years, and a first rate hike in three years is expected Wednesday.
• If the Fed does nothing, it loses credibility on inflation, and long-term borrowing costs go up instead of down — the opposite of what Trump and Treasury want.
• The gap between short- and long-term rates would widen fast, a pattern that has shown up right before past recessions.
• Higher long rates also hurt banks holding older bonds and make it more expensive for companies to borrow — buy-now-pay-later lender Klarna is already short on cash versus what it owes.
• The whole economy is balanced on the stock market, so a stagflation scare that knocks stocks over would trigger heavy layoffs, with little chance of a bailout from this Fed or a divided Congress.

Outlook: A hike Wednesday is the likely and healthier outcome, and markets would probably treat the current AI-driven selloff as a buying opportunity.