Rates are rising at unprecedented speed. When will they bite?

If you want to impress central bankers, inject “long and variable lags” into a conversation and heave a heavy sigh. The phrase, coined by Milton Friedman, a Nobel-prizewinning economist, is sophisticated shorthand for the delayed and uncertain effects of monetary policy.

Raising rates, as most central banks are now doing, should lead to slower growth and lower inflation. But it can take time for the full impact to be felt. Hence Friedman’s idea of a long lag. The variability, meanwhile, refers to the lack of a predictable interval between raise and result.

Lags present an acute challenge at the moment. Tightening in the past few decades has been gradual, helping to mitigate uncertainty. This time central banks are furiously ratcheting up rates. The Federal Reserve is on course to raise them from a floor of 0% to 4% by the end of this year, its steepest tightening in four decades. Economists including Ben Bernanke, a former chairman of the Fed and a new Nobel laureate,…

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This article was written by and originally published on www.economist.com