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BEVERLY HILLS — For months, progressives griped at each turn of the screw as Federal Reserve Chair Jerome Powell tightened monetary policy. Now that a few New York and California banks have failed, those attacks are starting to escalate.

“Failures of Silicon Valley Bank and Signature Bank and the lagging impacts of the Fed’s earlier rate hikes leave our economy even more vulnerable to an overreaction by the Fed,” Democratic lawmakers wrote in a letter led by Powell’s bête noire Sen. Elizabeth Warren of Massachusetts.

“Continuing to raise interest rates would be an abandonment of the Fed’s dual mandate to achieve both maximum employment and price stability and show little regard for the small businesses and working families that will get caught in the wreckage,” they said.

Few at the Milken Institute Global Conference believe the Federal Open Market Committee will heed those calls on Wednesday. As I covered in yesterday’s edition, the muted response — at least initially — to the failure of First Republic was interpreted as a sign that traders think damage to the banking sector has been contained. Chris Ailman, the chief investment officer of the California State Teachers’ Retirement System, said in a short interview that he thinks the Fed will raise rates later today even as markets and the economy continue to “muddle along.” (Regional bank stocks plunged on Tuesday amid lingering uncertainty).

But just because that’s what people think the Fed will do doesn’t mean it’s what everyone thinks they should do. And the calls for Powell to tap the brakes come as financiers reckon with the fact that once-favored institutions are buckling under the strain. For once, progressive lawmakers and investment bankers are singing from the same hymnal.

“There’s no reason to do a rate hike this week,” Peter Orszag, the former Office of Management and Budget director who now leads Lazard’s investment banking division, said during a panel.

Orszag, whose firm was hired as an adviser to First Republic before its sale to JPMorgan Chase on Monday, added that the pressures facing regional and community banks — along with the sharp decline in job openings — are signs that the “ingredients are in place for the disinflationary process to continue.”

Are those ingredients potent enough for Powell to throw up his hands and say “enough”? Certainly not, Strategic Value Partners Founder and Chief Investment Officer Victor Khosla told your host.

Powell has insisted for months that the Fed will do whatever it takes to bring down inflation. While that’s started to cool, the PCE was still north of 4 percent in March — well above the Fed’s target rate.

That level of inflation long term is “corrosive,” Khosla said.

It’s likely that the Fed Chair agrees. But we’ll find out more when Powell takes the podium to discuss the central bank’s rate decision at 2:30 p.m.

Today at Milken: My colleague Debra Kahn moderates a green energy panel at 11:30 a.m. … World Bank President David Malpass speaks at 2:30 p.m. at Milken … Rep. Brendan Boyle (D-Pa.) and former Trump Chief of Staff Mick Mulvaney talk about the debt ceiling at 2:30 p.m. … Japanese Digital Minister Taro Kono talks digital innovation at 4 p.m. … Eugene Daniels interviews Obama Foundation CEO Valerie Jarrett at 5:30 p.m. …

The rest: The SEC will vote on private fund and share repurchase rules at 10 a.m.… Sen. Rick Scott (R-Fla.) holds a press conference on the debt limit at 2 p.m.

Debt ceiling— Our Caitlin Emma and Nicholas Wu: “Congressional leaders are digging in ahead of next week’s White House meeting on the debt limit, with House Democrats prepping a Hail Mary while Republicans wait on President Joe Biden to meet them at the table. The GOP’s insistence on Democratic concessions in the debt talks makes it highly unlikely that House Minority Leader Hakeem Jeffries will succeed in his latest pitch: an arcane procedural maneuver that requires Republican support in order to jam Speaker Kevin McCarthy into voting on a ‘clean’ hike to the nation’s borrowing limit.”

With both sides dug in, what’s Wall Street’s reaction?

“With all the things that are out of our control, this is one that’s actually in our control. But unfortunately, it is a gigantic risk that’s out there. And it changes the whole equation if something doesn’t get done in a timely fashion,” Wells Fargo CEO Charlie Scharf said on a panel at Milken on Tuesday morning.

— Jennifer Scholtes, Caitlin Emma, Kelsey Tamborino and Michael Stratford: “How McCarthy could pick off centrist Dems with 4 debt-limit ideas”

More SVB — The Senate Banking Committee will hear from the former heads of failed banks, as well as federal and state regulators, next week.

The former CEOs of Silicon Valley Bank and Signature Bank, as well as the former chair of Signature Bank, will appear before the panel at 10 a.m. on May 16, the panel said Tuesday night. FDIC Chair Marty Gruenberg and Fed Vice Chair Michael Barr — as well as National Credit Union Administration Chair Todd Harper, OCC acting Comptroller Michael Hsu, New York State Department of Financial Services Superintendent Adrienne Harris and California Department of Financial Protection Commissioner Clothilde Hewlett — will testify at 10 a.m. on May 18. — Eleanor Mueller

FIRST IN MM: Born in the U.S.A. — Sens. Tammy Baldwin (D-Wisc.) and J.D. Vance (R-Ohio) will introduce a bipartisan bill today that would require products sold online, like products sold in person, to label where they were produced. Though the legislation passed the Senate in 2021 as part of bipartisan chips legislation, it was never enacted amid concerns that it could pose complications for retailers. — Eleanor

The credit crunch is here — Credit is starting to tighten and it’s going to be painful.

“This cycle – the one we are in — is much more of a grind, grind, grinding down. Interest rates have gone up, we believe they’re going to stay up, we think it’s going to be a grind, grind, grind to get back up,” Khosla said during a Milken panel.

As banks pull back from the lending market, private funds, including lightly regulated fund managers operating as so-called shadow banks, will swoop in to capture a larger share of the market. But in the meantime, “our view is that we are headed into a recession,” said Anne Walsh, the chief investment officer of Guggenheim Partners Investment Management.

“We’re not necessarily predicting a COVID pandemic or a global financial crisis level of credit problems, but it probably is going to feel pretty painful as defaults increase” and more companies are downgraded by credit ratings agencies, she added.

Manufacturing droops — The NYT’s Lydia DePillis: “Factories that roared out of the recession have stalled, hampering the economy, even as a new wave of production looms.”

Market falls — Reuters Caroline Valetkevitch: “Major U.S. stock indexes fell more than 1% each on Tuesday as regional bank shares tumbled on renewed fears over the financial system and as investors tried to gauge how much longer the Federal Reserve may need to hike interest rates.”

Deposit insurance — Scharf also weighed in the debate over the FDIC’s deposit insurance limit shortly after his stagemate, former Treasury Secretary Steven Mnuchin doubled down on his call to raise the cap to $25 million.

“I’m all for raising the level of FDIC insurance premium but I would not go too far with it,” the Wells Fargo boss said. “There’s no reason why the banks should subsidize the ills that happen at all of the banks, across the system, unconditionally.”

Peirce blasts SEC’s private fund proposals — Our Declan Harty: “SEC Commissioner Hester Peirce on Tuesday questioned the Wall Street regulator’s push to rein in the private equity and hedge fund world, saying it could carry “grave implications” for the industry.”

ESG — P&I’s Rob Kozlowski: “Florida Gov. Ron DeSantis, a likely 2024 Republican presidential candidate, signed a bill Tuesday he touted as the latest salvo in his war against ESG investing, one day after the state’s investment office announced a significant investment in clean energy.”

Scammers hit a PAC — Raw Story’s Alexandria Jacobson: “The Managed Funds Association PAC reported initially losing $147,000 in fraudulent check payments, although it appears to have since recouped the money, according to filings with the Federal Election Commission.”

Correction: An earlier version of this newsletter misstated Lazard’s role in the First Republic sale.