Billionaire David Rubenstein says the Fed will keep hiking in March to show it's still fighting inflation despite SVB collapse

• The Fed is likely to keep raising interest rates after the collapse of SVB, David Rubenstein said. 
• "I suspect 25 basis points is the split-the-baby decision that's most likely," he told Bloomberg. 
• Markets see a potential pause in rate hikes after SVB was seized last week. 

Silicon Valley Bank's collapse triggered expectations the Federal Reserve next week will pause its run of interest rate hikes, but David Rubenstein sees policymakers forging ahead with another increase. 

For the March 21-22 meeting, the "big decision that has to be made by the Federal Reserve is do they increase interest rates by 50 basis points, 25 basis points, or no basis points?" he told Bloomberg TV on Wednesday. 

A pause in rate hikes would make people think the Fed has lost their interest in fighting inflation, the co-founder of private equity firm Carlyle Group said.

But an increase of 50 basis points might be too much for some of the banking companies right now, he added.

"So I suspect 25 basis points is the split-the-baby decision that's most likely," Rubenstein said. 

Markets swiftly started to price in expectations the Fed will halt its streak of rate hikes after US regulators seized SVB late last week. Investors have also started pricing in the potential for rate cuts later this year.

Short-term bond yields have plunged as markets anticipate a potential pause. The 2-year Treasury yield tumbled to 45 basis points to 3.76% on Wednesday. Last week, that yield topped 5% for the first time since 2007 as Federal Reserve Chairman Jerome Powell signaled the potential for the Fed to speed up its hiking. 

SVB, a lender centering on tech startups, was facing billions in losses on a massive bond portfolio as its value was hammered by benchmark rates, which have soared to 4.5%-4.75% from near zero a year ago. 

Rubenstein said monetary policy makers during this tightening cycle were focused on tamping down inflation and likely didn't spend much time worrying about the ability of banks to survive the surge in borrowing rates. 

"I think they may have been caught unaware of how serious the problem was," said Rubenstein.