This Fed Doesn’t Believe That Monetary Policy Acts With A Lag

Real GDP grew at 2.4% in Q2, and that led the majority of forecasters to join the “soft-landing” camp. But we’re not buying it. As chronicled by Rosenberg Research, real GDP averages a 2%+ annual rate in the quarter in which the Recession begins, and that includes the Great Financial Crisis (in Q4 2007 GDP grew at +2.2% annual rate). In addition, and of great significance, it is widely known that monetary policy impacts the economy with a long and variable lag; most economists put this lag at 12 to 15 months. Yet despite the fact that much of this past year’s interest rate increases have yet to be felt, this Fed raised rates 25 basis points (.25 pct. points) at last week’s meeting (July 26).

The chart at the top of this blog outlines what this means.