Strangely, America’s companies will soon face higher interest rates

The Economist

Between early 2022 and mid-2023 the Federal Reserve tightened monetary policy at the fastest pace since the early 1980s, lifting America’s policy interest rate from 0-0.25% to 5.25-5%. When the central bank’s policymakers next meet on September 17th and 18th, they will almost certainly start cutting rates. Investors even wonder whether they will begin with a 0.5-percentage-point reduction, in response to cooler-than-expected economic data.

The immediate impact, though, may be muted. Central bankers have long thought that monetary policy does not have an instantaneous effect on the economy; Milton Friedman once described the lag between an adjustment and its impact as “long and variable”. Yet in the most recent cycle the lag, for corporate borrowers at least, seems to have been even longer than usual. The strange outcome is that just as policymakers are about to cut, perhaps sharply, interest-rate conditions for parts of the economy will tighten.