It’s all in the lags

Gary Duncan:

“Too often, markets forget that it takes many months for past interest-rate changes to have their full effect, so present levels of growth and inflation tell us little about what the Fed ought to do. Critically, too, interest rates take about twice as long to affect inflation as they do to feed through to growth.

This explains why America's inflation rate still looks worrying just now, at a time when growth has peaked and looks set to slow: it’s all in the lags.”