'If the Fed doesn't raise rates, I would get more anxious': Strategist

Investors are now concerned that banking challenges in Europe could impact the U.S. markets as Credit Suisse (CS) looks to unwind its balance sheet for a sale to UBS (UBS).

In an interview with Yahoo Finance's Julie Hyman and Brad Smith, State Street Chief Investment Strategist Michael Arone said, "now, for the very first time, the Federal Reserve, in a meaningful way, will have to balance its inflation-fighting credibility with financial stability,"

This comes as Wall Street looks for more actions from the Federal Reserve and U.S. government to restore confidence in the banking system after U.S. regulators bailed out the uninsured depositors at Silicon Valley Bank.

Markets are now favoring a 25 basis point to 50 basis point hike in interest rates at the Fed's Federal Open Market Committee Meeting on March 22. Arone notes that if the Fed does not raise interest rates, then that sends a bigger signal that it may be more concerned about Europe's banking woes.

Key video Moments:

00:01:12 Risk appetite for U.S. stocks

00:02:40 Banking turmoil playbook

00:04:00 The banking/financial sector

00:07:10 Europe's banking collapse impact on the U.S.

Watch our full conversation with Michael Arone here.