There’s never been a lag between changes in monetary policy and actual impact quite like this one
Tighter money still isn’t slowing the US economy because:
Money supply is growing
Companies are paying less in interest thanks to cheap fixed rates
Disinflation is stimulating the economy.
US house prices survived 8% mortgage rates, so less pressure for lower fed funds rates
The dramatic rise in interest rates engineered by the Federal Reserve has, to date, had little discernible impact on economic growth or employment. Working out just why this has happened now becomes critical both for the Fed and investors as they try to navigate a course through the post-Covid world.
Tim Congdon, a former adviser to Margaret Thatcher and now head of the Institute of International Monetary Research, points out that by M3, December saw an increase of almost 0.6% (an annualized rate of 7.2%).
His suggestion is that the federal government is funding its deficit by borrowing from banks, which has the effect of increasing money in circulation.
Another issue is that the Fed’s long wait created far too generous a window of opportunity for companies to lock in low rates. That insulated them from the tightening that followed.
John Authers Bloomberg 28 February 2024
Desperately Seeking Restrictive
https://englundmacro.blogspot.com/2024/02/desperately-seeking-restrictive.html
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