Milton Friedman famously taught that monetary policy operates with long and variable lags. By this, he meant that the effects of raising or lowering interest rates should not be expected to occur instantaneously but rather after a long lag.

One of the implications of Friedman’s teaching is that if the Federal Reserve waits for the clearest of signs that the economy is cooling and that inflation is coming down, it likely will have waited too long to avoid a recession. Any interest rate cuts that it makes belatedly will not have the necessary time to arrest the slowing in the economy. This would seem to be particularly the case now at a time when, in addition to causing households and businesses to rein in their spending, the Fed’s high interest rates are damaging the financial system while darkening clouds are gathering over the world economy.

In recent........

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