Anticipation Meets Reality in Economic Policy

Monetary policy effectiveness is influenced by structural changes in the economy, such as the significant decline in adjustable-rate mortgages from 60% in 2009 to just 8% today. This change prolongs the time it takes for rate adjustments to impact consumer behavior. Despite continuous discussions around the lag in monetary policy implementation, there is a necessity to reconsider conventional assumptions as economic conditions evolve. Current economic indicators suggest readiness for capital spending and demand, particularly in housing, yet there are concerns about unrealistic expectations, especially regarding mortgage rates reverting to historical lows seen in 2021. The inversion of the yield curve adds to this uncertainty, as it highlights the risk that reductions in short-term rates may not correspondingly lower long-term rates, which could misalign with market expectations.