, Columnist
Why Fed Rate Increases Are Hitting All at Once
Tighter credit and the rising cost of deposits are squeezing banks — and the wider economy.
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Everyone knows that the effects of interest-rate increases come with a time lag. It’s tempting to think it’s like pressing the brake in a car: Central banks push the pedal a bit, then a bit more and eventually the economy steadily starts to slow down.
The turmoil in banking this week shows this is the wrong analogy. Monetary policy is more like an elastic band: You can pull on it for ages and nothing seems to move until suddenly the other end comes pinging right at you.