Simply keeping rates steady at this higher level is itself further tightening.

 The effects spread more widely as time passes. Peter Boockvar described the process in one of his pre-FOMC letters.

“Just keeping rates at high levels for longer is a continued form of monetary tightening as each day that passes someone's adjustable rate mortgage resets much higher, someone's commercial real estate debt is coming due at an interest rate on offer more than double on the loan that is maturing, some businesses debt needs to be refinanced also at a much steeper rate, and some project or business doesn't get started because more equity is needed because the cost of capital is too high to make the numbers work, each and every day from here. 

And each time it happens, more cash is allocated to interest expense than something else or some business doesn't make it. Throw in the ever-growing needs of the US government who is now crowding out the private sector and this is a process of tighter money and less financing availability that will take years to play out, again assuming the Fed is committed to keeping rates higher for a while.

Another aspect of this is the change in real interest rates. “Real rates” are inflation adjusted, since inflation lets you repay with depreciated money. If your nominal rate is, say, 7% and inflation is 5%, your “real” rate is 2%. Until recently real rates were mostly near zero or even negative, which helped incentivize the debt that’s becoming problematic.

If a) the Fed keeps nominal rates steady or higher and b) inflation keeps falling—both of which seem likely at least over the next few months—real interest rates will rise, aggravating the process Peter Boockvar describes. That process eventually leads to recession if allowed to go on too long. But then Volcker had no issue putting us into two recessions.

John Mauldin 16 June 2023

https://www.mauldineconomics.com/frontlinethoughts/a-skip-not-a-stop

“The level to which we raise rates is actually a separate question than the speed with which we move,” Powell said. 

“Earlier in the process, speed was very important. It is not very important now.” Powell justified the need for further tightening saying that “inflation pressures continue to run high, and the process of getting inflation back down to 2 per cent has a long way to go”.

FT 21 June 2023

https://www.ft.com/content/713f9bf4-009b-4f53-9b56-64eb85775ccc